The Government proposes to modify the Budget measure as announced to:

• introduce a limited deferral of the taxing point for schemes where there is a 'genuine risk of forfeiture', to protect employees who have a real risk of being taxed on a share or right that they might never get full title to;
• modify the taxing point ('deferred taxing point') for shares, stapled securities and rights;
• introduce an annual reporting requirement and associated withholding arrangements;
• review the existing valuation rules;
• modify the rules relating to the refund of income tax for forfeited benefits.

The Government proposes that these new arrangements will apply to shares or rights acquired on or after 1 July 2009. The existing law apply to all shares and rights acquired before 1 July.

Moore Stephens in its submission to Treasury proposed the ESS provisions be revised as follows;

• Removal of the existing section139E election provision;
• Insertion of default taxation at grant on all schemes;
• Insertion of an Election to defer tax on qualifying schemes;
• Expansion of the existing PAYG Reporting System to include the value of any discount provided to an employee under an ESS on the PAYG Payment Summary in a similar manner to Reportable Fringe Benefits;
• Functionality in an individual’s tax return to capture the PAYG Payment Summary data and notate it as income in a similar manner to allowances and certain lump sum payments;
• Functionality within the taxation return to elect for taxation deferral and subsequently remove the discount from assessable income;
• No alteration to the existing cessation time provisions for determining the deferred taxing point;
• No new withholding tax measures;

Furthermore we support the initiative to expand the valuation options available to entities, and a further widening of access to tax refunds where shares are forfeited as a result of subsequent conditions.

We have outlined our specific issues in more detail in our Submission to Treasury, click here to view.