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Better Targeting the Concessions for Employee Share Schemes – Post–implementation Review – Department of the Treasury

In the 2009-10 Budget, the Government announced a measure to alter eligibility for tax concessions for employee share schemes. The then Prime Minister granted an exceptional circumstance exemption from preparing a Regulation Impact Statement for this measure. Consequently, a Post‑implementation Review (PIR) was required to commence within one to two years of the implementation of changes to the eligibility criteria. An employee share scheme (ESS) is a scheme under which shares or options (ESS interests) in a company are provided to an employee in relation to employment. These shares or options are considered as income when acquired below the market price. Under the previous arrangements, employees could choose one of two tax concessions on the discount they receive from an employer under a qualifying employee share acquisition scheme: up-front or tax-deferred concession. The measure tightened the eligibility for tax concessions for ESS. Specifically, individuals with taxable income over $180,000 are no longer able to receive a tax concession for discounts received on shares or options through an ESS. The tax-deferred concession is now only available if the shares are at a real risk of forfeiture, or if the shares are acquired under a salary sacrifice arrangement and the employee receives no more than $5,000 worth of shares under those arrangements in a given year.  The PIR found that enhanced reporting requirements for employers means that the Commissioner may be able to pre-fill employees’ tax returns, which will reduce their compliance costs.  The PIR found that there may be a compliance cost impact for tax agents in learning the new rules. The PIR notes that the increase in the number of interests in ESS reported following the introduction of the changes demonstrates that increased reporting is meeting the objective of improving integrity. The PIR concludes that the measure is broadly meeting its objectives and that the Government is continuing to consult with stakeholders on the impacts the measure may be having on some sectors of the economy. The Post-implementation Review prepared by the Department of the Treasury was assessed as adequate by the Office of Best Practice Regulation.