In our July 2009 issue of Insight, we highlighted the proposed reforms to the Australian stock option legislation announced in the Australian Budget on 12 May 2009, as well as the subsequent amendments to those proposals which had been set out in a Final Policy Statement, dated 1 July 2009.

We can now advise that the actual draft legislation was released on 14 August 2009. The legislation (in the form of an Exposure Draft) has been sent out in a package which also contains draft regulations and explanatory materials. There will be an on-going consultation process, the final stage of which is expected to end on 28 February 2010. There will, however, be limited scope to raise general questions as the consultation period progresses, due to the fact that the latter stages of the consultation will focus on certain specific issues, such as the best method by which to determine the market value of employee share plan benefits. In any event, it is expected that the draft legislation will be introduced to the Australian Parliament in the Spring sittings, prior to the completion of the consultation period.

Some of the key provisions contained in the Exposure Draft include:

  • The opportunity for employees to elect to defer up-front income tax liabilities arising on the grant of a right, or share acquisition, has been removed. Instead, deferral will only be permitted in limited circumstances, such as where there is a “real risk of forfeiture” or where a “salary sacrifice” concession applies.
  • Employees will continue to be eligible for a A$1,000 tax exemption for nondiscriminatory plans where there is no risk of forfeiture, but only to the extent that the employee’s “adjusted taxable income” is A$180,000 (under the current law there is no such cap).
  • Tax paid on the grant of a right, or on the acquisition of shares, will generally be recoverable if the share or right is subsequently forfeited or lapsed. However, any such refunds of tax will be limited to instances where the lapse/forfeiture was not a result of the employee’s choice, or where the plan rules provide protection against, say, a fall in market value.
  • Employers will now be subject to annual reporting requirements, which do not exist under the current law. This is expected to apply especially to foreign employers. This may mean that such employers will have to introduce additional levels of monitoring through the administration of their share plans.
  • In instances where an employee fails to provide their tax file number or ABN to their employer, a form of withholding tax will be applied.