Confusion over share scheme changes
By Jacob Saulwick | smh.com.au | 19 November
The saga over the Government's attempt to reform employee share schemes is not expected to end when revised legislation passes Parliament this fortnight.
Since it announced in the last budget its determination to close loopholes in share schemes, companies and tax advisers have inundated the Government with criticism of the proposed reforms.
And while the Government has made concessions from its initial budget proposal, it is still waiting for two reports it has commissioned that could prompt even more changes to how company share schemes are taxed.
The Productivity Commission's final report into executive pay, to be released in February, is expected to recommend doing more to encourage companies to remunerate staff in long-term shares and options.
The commission's draft report, released last month, outlined concerns with the Government's proposal to tax share options when an employee leaves the company.
This created a disincentive for companies to pay staff in long-term shares, which was contrary to "best practice governance promoted in Australia by the prudential regulator and overseas".
The Government is waiting on a report from the Board of Taxation, which is looking into whether small, start-up companies should have separate arrangements to help them use share schemes.
Macquarie Group this week said it would alter the way it proposed to pay executives to take into account the proposed laws, which would limit the use of share options.
And tax advisers said the issues thrown up by the share scheme reforms were far from over.
"There are a number of open issues - some of which will be addressed by the Productivity Commission, hopefully," Paul Ellis, a partner at Ernst & Young, said.
The issues include whether share options are taxed when workers leave their company, and whether share options should be taxed when they vest.
"It is probably better to sweep all this stuff up at once, rather than do it in bits and bobs," John Fauvet, a partner at PricewaterhouseCoopers, said.
"We may find that this legislation will get passed now, and it will last as long as a year, because next year we may find they are going to have to make changes to it.
"It continues to make life difficult for corporate Australia if you are forever messing about with this stuff. So you never have a degree of certainty that lasts more than a year or two."
First published by Smh.com.au on November 19 2009
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