Government set to back down on employee share schemes

The Government has signalled it is prepared to re-examine its controversial crackdown on employee share schemes after anger from business leaders, unions and tax experts.

The Government announced in the federal budget that it would force all participants in employee share schemes earning more than $60,000 to pay tax upfront on any shares or options they receive.

While the Government said the crackdown was designed to catch wealthy executives who had been avoiding tax by using the scheme, it appears to have had the unintended consequence of freezing almost every employee share scheme in the country.

But a meeting of tax experts, industry groups and Government officials appears to have put the Government on the back foot. Following the meeting, Assistant Treasurer Chris Bowen said the Government was considering a compromise, such as raising the $60,000 threshold.

“As part of that consultation process, we will be taking on board some of the concerns raised and examining the most efficient way of protecting the tax base and cutting down potential rorting at the higher end, while maintaining the current support for employee share ownership schemes, particularly for low- and middle-income workers.”

Corporate Tax Association executive director Frank Drenth told The Australian that the meeting was constructive and has suggested that problems with executives failing to declare tax on shares and options could be solved with better reporting requirements.

“We agree that’s potentially an issue, and we pointed out that in many other countries this is dealt with effectively through reporting requirements.”

Another suggestion, from Tax Institute of Australia counsel Michael Dirkis, is to limit the number of shares to which tax can be deferred at, say, $10,000.

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Companies furious over changes to employee share schemes