The proposed changes to the employee share scheme in the Budget are a “disaster for employees and employers” according to Mr Michael Dundas, a Partner of Moore Stephens in Sydney.
Under the current law, employee scheme participants can choose whether they want to pay tax on the schemes at the start or when they sell their shares. But under the proposed changes, participants will only be allowed to pay tax upfront.
Dundas said the changes will have a significant negative impact on both employers and employees.
“If employees are unable to defer payment of tax on shares or options received as part of an employee share scheme until they are able to sell, they would not be able to afford to participate in such schemes which would, in turn, make them ineffective to employers as remuneration and retention tools.”
Dundas believes that under these changes, most employers would abolish their employee share schemes, and therefore would result in “employers having less flexibility and fewer tools at their disposal in the remuneration of their staff.”
Mr Michael van Schaik, an Associate Director of Moore Stephens in Melbourne has also rejected the changes, believing that “an inbound executive will either be faced with an upfront tax bill on commencement of their employment,” or, “an employee share scheme will not be available due to the tax constraints which means the best talent will look elsewhere for opportunities.”
Moore Stephens has made submissions on this issue to both the Institute of Chartered Accountants in Australia and the Taxation Institute of Australia.