Supplementary Explanatory Memorandum(Circulated by authority of the Treasurer,the Hon Ralph Willis, MP)
Chapter 1 - Amendments 1 to 3 - Employee share schemes
1.1 Amendments 1 to 3 make changes to the employee share scheme (ESS) provisions set out in Schedule 2 to the Bill.
Amendment 1: Shares or rights acquired at market value
1.2 New Division 13A generally taxes the difference between the market value of a share or right and the consideration given by the employee (i.e., the 'discount' on the share or right) at the time the share or right is acquired. Where an employee purchases shares or rights under an ESS for market value, there will generally be no amount taxed as there is no discount.
1.3 However, a discount may arise under new Division 13A where the shares or rights are purchased under an ESS for market value and the employer places a restriction on the sale of the shares or rights. The discount would be the difference between the market value of the shares or rights at the time the restrictions lift and the consideration given for the shares or rights.
1.4 Item 1 will be amended to insert new paragraph 139C(2A) to exclude from the new ESS arrangements shares or rights acquired for consideration equal to or greater than market value. The tax treatment of these shares and rights will remain unchanged.
Amendment 2: Subsection 136(1) (definition of 'fringe benefits')
1.5 Item 9 will amend the definition of 'fringe benefits' in s.136(1) of the Fringe Benefits Tax Assessment Act 1936 so that benefits acquired by employees and their associates under an employee share scheme will not be subject to fringe benefits tax. This will ensure that there will be no double taxation of the benefits from employee share schemes (the discount on the share or right will be included in the assessable income of the employee).
1.6 New paragraph (hb) of the definition of 'fringe benefits' to be inserted by Item 9 will exclude benefits acquired by an interposed trust on behalf of employees. As currently worded, the only benefit covered by paragraph (hb) is the provision of shares or rights to acquire shares. This does not allow for the situation where an employer gives money or other property to a trust to acquire shares for employees.
1.7 To ensure that double tax is avoided in all cases, paragraph (hb) in Item 9 will be amended to exclude from the definition of 'fringe benefit' benefits given to a trust that consist of money or other property. The term 'money or other property', which would include shares or the right to acquire shares, will be substituted for 'a share or right'.
Amendment 3: Option to elect that the new measures will apply from 10 May 1994
1.8 The current ESS arrangements were announced on, and take effect from, 28 March 1995. Some employers may have acted in reliance on the original ESS proposals announced on 10 May 1994.
1.9 New item 13 will give employees the option of electing to have the new ESS measures apply to shares, or rights to acquire shares, acquired after 7.30 p.m. on 10 May 1994 and before or at 6 p.m. on 28 March 1995.
1.10 New item 13A sets out how an election must be made to take advantage of the concessions provided by Part 4. An election may be made within 90 days after the commencement of the Item or when the taxpayer lodges his or her return for the 1994/95 income year.