The Federal Government's proposed changes to employee share scheme rules could cause the schemes to come to a halt and will have a negative impact on both workers and employers, lawyers say.
The changes announced in this week's federal budget mean that in future, all employees will be taxed at the time they are granted shares or options, instead of when they sell them.
The exception will be employees earning less than $60,000, who will be able to claim a $1,000 tax exemption.
According to Moore Stephens partner Michael Dundas, if employees aren't able to defer payment of tax on shares or options received as part of a scheme until they're able to sell, "most employees would not be able to afford to participate in such schemes".
This would make them ineffective to employers as remuneration and retention tools, and most, if not all, employers would abolish them, he says.
KPMG equity based compensation partner, Martin Morrow, says the objective of the schemes has been to "promote employee ownership" in an organisation, not to reduce tax, but "by making these changes, [the Government] is removing the ability for employees to receive a stake in the company they work for as part of their remuneration, and diminishes any sense of alignment and ownership".
A more effective change would be to align the timing of the tax payment with the sale of the shares or options, at which time PAYG should be withheld, Morrow suggests. "This is the approach taken by many western countries."
Alternatively, he says, the Government's concerns about any tax avoidance could be addressed by the income being reported on employees' payment summaries.
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