Implications of the 2009 budget announcements on share plans

Since the announcements on Budget night, there has been a blizzard of adverse comments on Government proposals to change the tax treatment of employee share plans. The Government will now go through a consultation process to improve on the original proposals, as summarised in a Press Release from the Treasurer on 24 May 2009.

The Australian government acknowledged community concerns with the proposed changes and the possible unintended adverse impact for lower level employees. Particular concerns include the low maximum income level of $60,000 per annum for access to the $1,000 tax exemption for broad based share plans and the removal of the ability to defer tax on higher value employee stock plans.
The Government has indicated that the policy options paper will canvass alternatives that include:

• Reporting requirements such as the application of withholding arrangements or enhanced Tax File Number (TFN) reporting to address tax avoidance concerns; 
• Reviewing the level of the income maximum for accessing the $1,000 tax exemption to ensure the continued availability of employee stock plan benefits for low and middle income employees; 
• Whether it may be appropriate to provide for the deferral of taxation in limited circumstances (such as when there is a real risk of forfeiture); and 
• Whether the tax law provisions which determine the market value of discounted and deferred shares or rights result in undervaluation.

A number of alternative measures have been proposed in order to achieve the Government’s stated policy objectives of increasing share plan revenue and minimising employee tax avoidance, including:

• Benefits awarded and realised being reported on the annual employee PAYG payment summary;
• Introduction of a withholding tax at the relevant taxing point;
• To encourage broad based employee share ownership, removing or increasing the $60,000 threshold to at or above $180,000 (proposed by the Finance Sector Union – a major government supporter).  This is about the threshold for top marginal tax rate.
• Removal of the upfront election so that income tax is paid when the actual benefit arises.

It is also possible that they may redefine “qualifying” rights to get around some taxation quirks exploited by some smaller and private companies.
The policy paper will be released for consultation next week.  Guerdon Associates has already discussed this with the government and will respond to this paper, as well as the many other government papers, inquiries and draft regulations. 

You may wonder how we fit in our day jobs, but so far we are (just) managing.

If you have a particular issue that you think our response should address let us know.  There are always unintended consequences for any new regulation, so the more examples the better.

© Guerdon Associates 2024
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