Australian Senate Economics Committee recommends delaying share scheme tax

The Senate Economics References Committee reported on the operation of Employee Share Schemes (ESSs) in Australia on 17 August.  The Committee members were Alan Eggleston, Chair (LP), Annette Hurley, Deputy Chair (ALP), David Bushby (LP), Barnaby Joyce (Nationals), Louise Pratt (ALP), Nick Xenophon (Independent).

The Committee made two recommendations:

1. That the ABS conduct a survey of ESSs in Australia every five years, starting at the end of the 2009–10 financial year.  

2. That the Government delay the introduction of the ESS tax legislation in order to take note of the other reviews in this area, including the Productivity Commission and Board of Taxation and the Henry reviews, to maintain legislative integrity and coherence.

Of key importance is the Committee’s recommendation that the share scheme tax be delayed, pending the outcome of the Productivity Commission review of executive and director pay, and the Henry tax review.  Both of these reports are to be delivered in December.

The Liberal Party has said that it will not block the taxation measure.  But given the report and make up of the Australian Senate, it may be touch and go as to whether the government can get the final version of its legislation through parliament before the summer recess.

The Committee looked at:

(a) the structure and operation of ESSs;

(b) the benefits of ESSs;

(c) the taxation issues relating to compliance of employers and employees participating in ESSs;

(d) the Government’s announcement of proposed changes to the treatment of ESSs, the background to those changes, the anticipated impact of the changes on employees, employers and Australian business generally; and

(e) the rules governing ESSs in other countries

In its deliberations and report, the Committee referred many times to Guerdon Associates’ submission (see HERE).

The ABS used to survey ESSs.  But this survey was stopped towards the end of the Howard government. 

The Labor members issued a dissenting report in favour/support of the Government’s proposed measures to improve the integrity of ESSs.  They opposed a suggestion from the majority that using ESSs as an alternative form of retirement savings merits further examination, arguing that while ESSs provide employees with incentives to save (although with tax deferral limited to a maximum of seven years or end of employment), they are not a long term tax advantaged savings vehicle — and superannuation will always remain the most effective vehicle for long term retirement income savings.

The ALP Committee members considered it is too difficult to compare the tax treatment of ESSs or options in different jurisdictions because of different tax bases and different employee share plan structures and the differing rationale for their provision. (We wonder what the Henry review will say on this…).  They also rejected the call for additional research into ESSs because ARC-funded research is already being undertaken. 

The Committee’s report makes interesting reading.  You can find it HERE.

Current reviews relevant to the operation of ESSs include:

  • The Productivity Commission is conducting an inquiry into executive remuneration, with the report due on 19 December 2009.
  • A review into Australia’s future tax system (i.e., the Henry Taxation Review) is also due to deliver its report in December 2009.
  • The APRA inquiry examines the governance of remuneration in APRA-regulated institutions, with the report expected to be released in September 2009
  • The Senate Economics Legislation Committee is looking into the Corporations Amendment (Improving Accountability on Termination Payments) Bill 2009, with the report due on 7 September 2009.

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