Review into Elements of the Taxation of Employee Share Scheme Arrangements

Background

On 1 July 2009, the then Assistant Treasurer released a Policy Statement  setting out the final taxation treatment of shares and rights acquired under employee share schemes, with the policy to be applied from that date. The final policy was intended to provide further certainty to allow companies to continue to provide share schemes into the future.

Terms of Reference

On 24 July 2009, the then Assistant Treasurer released the details of the industry consultation and the terms of reference  for the Board’s review into elements of the taxation of employee scheme arrangements.

Under the terms of reference the Board was requested to examine:

• how best to determine the market value of employee share scheme securities; and
• whether shares and rights under an employee share scheme that are provided by start-up, research and development and speculative-type companies should be subject to separate tax deferral arrangements outside of those proposed by the Policy Statement .

In undertaking the review, the Board was to consider:

• whether the existing rules for valuing unlisted rights to acquire shares properly reflect market value;
• whether special rules are appropriate or necessary to determine the market value of employee share scheme shares and rights (listed and unlisted);
• whether there are suitable alternative mechanisms for determining market value;
• whether it is appropriate or necessary to provide separate deferral arrangements for employees of start-up, research and development and speculative-type companies receiving shares or rights under employee share schemes; and
• possible options to provide assistance to start-up, research and development and speculative‑type companies.

The Board was asked to consult widely and to provide all stakeholders with the opportunity to participate in the review. After considering the views of all stakeholders the Board was to provide a final report to the Government by the end of February 2010.

In conducting the review, the Board had regard to the Government’s taxation review headed by Dr Ken Henry. Further information on the Review of Australia’s future tax system can be found at www.taxreview.treasury.gov.au.

Submissions

On 7 September 2009, the Chairman of the Board of Taxation announced that the Board was inviting submissions for its review into elements of the taxation of employee share schemes.

The Board requested written submissions on the review into elements of the taxation of employee share scheme arrangements by 9 October 2009. The Board received 22 public submissions which are available for review at the links below. All submissions received were acknowledged.

Board’s Report and Government Response

On 23 April 2010, the then Assistant Treasurer announced the release of the Board of Taxation’s report  on its review into elements of the taxation of employee share schemes. In preparing its report the Board took into account the various submissions to the review, advice from its expert panel and discussions with stakeholders.

The Board’s report makes five recommendations and includes advice from the Australian Government Actuary into the valuation of unlisted rights. The then Assistant Treasurer said that “the findings of the Board are consistent with the Government’s employee share scheme reforms, and we fully accept four of the five recommendations and, in relation to a fifth, we partially accept it and will delay the consideration of one particular aspect to a later date.”

“The Tax Office has agreed to all aspects of the recommendations that relate to it and has already started work on implementing each of them.” All four of the Boards recommendations relating to the ATO and guidance materials were implemented in full.

The Board’s report on its review into elements of the taxation of employee share schemes is available for download.

Further information on this review can be obtained from the Board of Taxation Secretariat on 02 6263 4366 or at taxboard@treasury.gov.au.

Submissions received