Business cautiously welcomes back down on employee share schemes

Business groups and tax experts have cautiously welcomed changes to the Rudd Government’s employee share scheme crackdown, but say the Government will still need to clarify some rules around the schemes before companies are prepared to reinstate their individual schemes. The Government announced its crackdown on the schemes in the Federal budget, introducing rules that would see any employee earning more than $60,000 forced to pay tax up front on shares or options granted under an employee share scheme.

But after howls of protest from unions and business groups, Assistant Treasurer Chris Bowen announced late on Friday that the Government would lift the threshold to $150,000. The Government will also tighten reporting requirements and will allow employees to defer paying tax if there was a “real risk of forfeiture” attached to options schemes.

The president of the Taxation Institute of Australia, Joan Roberts welcome the changes as “a step in the right direction”.

“I think that these changes allow the government to crack down on any abuse that’s out there and also save the schemes from being ditched.”

But her organisation will continue its dialogue with the Government over the next few weeks, with Bowen calling for submissions on an options paper by July 3.

“I think the $150,000 threshold is a reasonable level, but we probably just want to look at the rules around the deferral periods.”

But it’s not clear whether the changes will lead to companies re-opening employee share schemes frozen in the weeks after the Federal budget.

The chief executive of the Australian Industry Group, Heater Ridout, said her organisation’s preliminary assessment of the changes is that they “don’t go far enough in their present form”.

“We will be examining the proposals in further detail and, after consulting with our members, will prepare a more detailed response to the Government’s new proposals.”

Yasser El-Ansary, tax counsel at the Institute of Chartered Accountants, has also expressed concern about the potential for a big compliance burden on scheme participants due to changes to reporting and disclosure requirements.

“The devil’s always in the detail. It’s one thing to think about the policy course and another thing to think about how the rules will work on the ground. At the end of the day, the new rules will appear to be more complex and impose additional compliance oblligations on employers.”