Consultation on tax changes relating to employee share plans must start from the position of not requiring tax payment until the shares or options vest or are exercised, Business Council of Australia Chief Executive Katie Lahey says.

“The BCA understands the government’s concern at ensuring that tax arrangements relating to employee share plans are not abused, and supports the closing of any loopholes,” Ms Lahey said.

“However, this should not be done at the expense of forcing the immediate closure of legitimate plans. Requiring upfront tax payment on these plans is simply unfair to most workers and makes the plans unviable.

“Forcing workers to pay tax upfront on shares that may or may not ultimately be received will leave businesses with little opportunity other than to close down their plans.”

Ms Lahey also expressed concerns that such an important initiative would be announced without any prior consultation with those impacted.

“Employee share plans have a range of benefits for workers, companies and the economy as a whole.  They provide employees with a clear stake in the performance of the company and help companies to better align their employees with the business strategy,” Ms Lahey said.

“We welcome the fact that the government has heard the overwhelming concerns from business, unions and the broader community about the adverse and unintended outcomes that would be caused by its budget proposal,” she said.

The BCA has been actively involved in consultation with the government since the changes were announced and would like to maintain a positive dialogue to find a way forward that meets government objectives without compromising the plans.

Ms Lahey said the logical first step in protecting against tax avoidance was to concentrate efforts on improving the reporting by employers of the granting of share and option plans to their employers. 

“Improving reporting arrangements should go a long way to addressing any perceived loopholes in the operation of employee share plans. The BCA welcomes the government identifying this as one potential policy option.

“We also recognise the government’s interest in ensuring the winding back of deferral arrangements that are inappropriate. Ascertaining appropriate deferral arrangements, however, warrants careful consideration and this is another area where the government is now seeking additional input. 

“We welcome the fast-tracking of consultation and the opportunity to outline in greater detail some practical suggestions that address the concerns raised by the government. It will be important for businesses that the issues are resolved so they can re-establish their employee share plans as soon as possible.”

The BCA, in partnership with the Corporate Tax Association (CTA), will be making a detailed submission within the next fortnight.

Ms Lahey said the BCA and CTA have together been actively involved in discussions with the government and Treasury officials since the changes were announced in the federal Budget. In these discussions they have sought to raise awareness about how a range of typical employee share plans operate in practice and how these plans (and their participants) would be caught up in the unintended consequences of the announcement. 

“We will continue to work closely with the government and Treasury to find a way forward that addresses the government’s legitimate concerns about tax avoidance issues while ensuring the overall viability of legitimate employee share plans is not compromised,” she said.