New report backs calls for employee share scheme reforms

A new report backs widespread calls for the government to reverse the 2009 legislative changes to employee share schemes (ESSs), showing that reforms could potentially boost the Australian economy by $1.4 billion over a decade.

The former Labor government’s 2009 tax changes were aimed at executives who tried to reduce tax by channelling income into share options. But technology start-ups and investors have complained these changes have hurt the economy and stopped them from hiring talent through share options instead of high salaries.

The report, compiled by Employee Ownership Australia and New Zealand (EOA), Link Market Services and Computershare, found that a reversals of the 2009 changes to salary sacrifice plans and option plans could increase tax revenue by over $215 million a year.

The report, Employee Share Schemes – Their Importance to the Economy, adds that following a reversal, the use of salary sacrifice plans were likely to immediately increase by 10 per cent, affecting 40,000 employees and increasing the average amount of savings per employee to $5,000. Over time, this would lead to a potential increase in tax revenue of $84 million, year on year.

The report also notes that there are a growing number of employees made redundant who face a tax liability on their equity due to the rules relating to tax at cessation of employment. These rules mean employees face large tax liabilities when they are made redundant, when they can least afford to pay. In addition, individuals who face these tax liabilities rarely receive the full equity grants when they are tested up to three years later.

“This reform is much needed and long overdue and this report shows it will deliver a significant boost to the Australian economy. Broad-based employee share ownership has been unequivocally shown to promote employee savings, innovation and productivity,” says Angela Perry MAICD, the chairman of EOA and Link Market Services’ global head of equity plan solutions.

She notes that Australia lags behind the rest of the developed world in the area of employee share ownership. While broad-based employee share ownership is relatively widespread in the listed company sector in Australia offering employee share plans, it is estimated that only three per cent of private and unlisted companies have “all-employee” share ownership schemes, compared to 23 per cent in the US.

Research by the former Department of Employment and Workplace Relations found the major reason employee share ownership had not grown in Australian SMEs was due to complexity and compliance issues, particularly surrounding the costs of implementing employee share ownership.

The government’s response to a discussion paper outlining current ESS arrangements and possible options for change is expected out soon.

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