BUDGET 09-10: Share scheme changes a 'disaster'

Proposed changes to employee share schemes a “disaster” for both employers and employees, law firm Moore Stephens warns

Proposed changes to employee share schemes will be a "disaster" for both employers and employees, law firm Moore Stephens warns.

Michael Dundas, a Partner of Moore Stephens in Sydney, says the changes announced in the 2009 Federal Budget will have a significant negative impact on both employers and employees and will not achieve the Federal Government’s stated objectives.

"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, most employees 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," he says.

"This does not equate to an improvement in the fairness and integrity of the existing provisions.

"It is our view that most employers, if not all, would abolish their employee share schemes if these changes go ahead. This would be a significant retrograde step and would result in employers having less flexibility and fewer tools at their disposal in the remuneration of their staff.

"Ultimately, this is going to cost the Australian economy as it will have a negative impact on corporate productivity through the reduction of incentives."

Michael van Schaik, an Associate Director of Moore Stephens in Melbourne, says Australian companies will be further impacted through their reduced ability to attract skilled foreign executives.

"Internationally competitive remuneration packages are a vital tool in attracting high-quality foreign executives," he says.

"Employee share schemes are a central plank of these packages and executives from other jurisdictions expect them.

"Under the changes proposed in the Federal Budget, an in-bound 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.

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