IRD Further Consider Employee Share Schemes

A slightly unusual development this month saw the IRD further consulting on changes to employee share schemes following submissions and discussions on the earlier issues paper.
In summary the Department's current thinking on the taxation of the employee share schemes is now as follows:

1.  When the taxing point continues to be a key issue. The IRD favour the time at which an employee holds shares on the same basis as a non-employee, that is the time when there are no put or call options and no upside or downside price protections. This potentially delays the taxing point and creates some uncertainty as to timing.

2.  Employers who provide employee share schemes should be entitled to a tax deduction that matches the income of the employee and the timing of when that income is taxed.

3.  No special rules for start-ups or unlisted companies are proposed.

4.  A continued exemption for widely offered employee share schemes is proposed with revised criteria and higher monetary thresholds.

5.  Transitional rules are proposed where shares under an existing scheme have already been taxed and they would have been taxed under the proposals within the third year following enactment. This should ensure the new rules are not imposed with an appropriate haste but will also not allow the new rules to be circumvented.

6.  Income under employee share purchase schemes would continue to be subject to provisional tax although from 1 April 2017 employers can elect to deduct PAYE from these amounts.

If any of these proposals affect your company then you will want to monitor how these develop into draft legislation and eventually law.