New tax rules have been introduced under the Taxation (Annual Rates for 2017 – 18, Employment and Investment Income, and Remedial Matters) Bill (Bill), which proposes changes to the tax treatment of benefits offered under employee share schemes.
Currently, under the Income Tax Act 2007, employee share schemes are intended to be taxed under a neutral tax approach. This means that the tax treatment of employee income paid in shares should be consistent with the tax treatment of employee income paid in cash. However, in some situations, the approach to employee share schemes has resulted in under- or over-taxation.
The Bill proposes to introduce a number of changes in order to modernise and improve taxation of employee share schemes, to be simpler, fairer and more efficient. These changes include:
- a new definition of “employee share scheme” to ensure that any scheme where shares in a company are transferred to an employee, shareholder-employee or associate, are caught by the new rules;
- where shares are provided to an employee subject to future conditions, the difference between the price paid by the employee and the market value will be measured and taxed at the time when the employee holds the shares, in the same manner as a shareholder; and
- transitional relief will be available for benefits provided under employee share schemes where the shares were granted or acquired before 12 May 2016.