Government backs down on share schemes changes

The Government has finally amended changes that were made in the Federal budget to employee share schemes, and is encouraging businesses to reinstate schemes that were put on hold.

In a major backdown for the Government, most employees will now be able to defer tax until they receive their shares and options, instead of paying it up front as the initial proposals suggested.

The Government will now raise the income threshold at which employees will need to pay tax upfront, on any shares or options granted to them, from $60,000 to $180,000.

Additionally, employees can now defer tax on up to $5000 worth of shares when they participate in salary sacrifice arrangements to take advantage of share schemes.

The changes come after months of controversy, during which several companies including Woolworths, Fairfax Media and Macquarie Group either suspended or scrapped their share schemes after the budget announcements.

Michael van Schaik, associate director at law firm Moore Stephens, says that his initial reaction is that the new changes hit the right note.

“My concerns were dragging forward the taxing point to tax people on shares on options that may never be exercised, and the proposed changes will overcome those problems.”

“Lifting the threshold up to the $180,000 threshold, it looks attractive, it’s certainly better than the $60,000 threshold. Overall, it’s a back flip, but they had to do it because otherwise share schemes were dead.”

Assistant treasurer Nick Sherry told The Australian Financial Review that the Government has “predominantly reverted to the pre-budget position in terms of a taxing point”.

Sherry also said businesses should now look at reintroducing their share schemes. “I certainly don’t believe there is any reason why schemes should not be reactivated.

“By reverting to the pre-budget position and expanding the real risk of forfeiture gateway, we have responded to business and their concerns.”