+ Employee Share Schemes

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Employee share schemes - new laws

On 14 August 2009 legislation was introduced into Federal Parliament which is now operative. It repeals the existing Division 13A of ITAA 1936 and replaces it with the new Division 83A.

Under the new arrangements, upfront taxation is the default position. Any discount on shares/rights acquired under employee share schemes will be taxed upfront with an upfront tax exemption available for employees with a taxable income of $180,000 or less (and where certain other conditions are satisfied).

Deferral of taxation will be mandatory where (a) there is a real risk of the shares/rights may be forfeited, (e.g. due to performance hurdles or employment conditions); or (b) where the shares/rights are acquired under certain capped salary sacrifice based schemes (capped to $5000 worth of shares).

The explanatory memorandum discusses the meaning of 'real risk of forfeiture'. It states that there must be more than a possibility of forfeiture and a real risk includes situations in which a share/right is subject to meaningful performance hurdles.

A real "risk of forfeiture" also includes the situation where the securities will be forfeited if a minimum term of employment is not completed. A condition which merely restricts an employee from disposing of a share or right for a specified time carries with it no 'real risk' of forfeiture.

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