Australian Government Withdraws Proposals on Equity Plan Taxation; Pledges to Come Up with New Approach

The Australian government has withdrawn a proposal to tax equity awards at the time of grant for higher income taxpayers (those who make more than $60,000 Australian, which is about U.S. $47,000). The proposal drew strong criticism from consultants, and a number of companies with broad-based plans said they would shut them down if the new rules were implemented. Regulators are now meeting with various interested groups to come up with a new proposal, which should be out by mid-June.

Under current Australian law, awards are taxed at grant with two exceptions: If a plan is open to at least 75% of full-time employees with three years or more of service and is capped at 5% of total shares, there is a $1,000 exemption on the issuance of an award or a tax deferral on any discount for up to 10 years.

There are no rules saying that shares must be available in proportion to salary or other considerations, so higher-paid people can get the bulk of the benefits. Somewhat under half of plans in public companies offer some form of free share or option; somewhat fewer companies have plans in which employees buy shares, usually at no discount. However, plans can be structured so that employees use pretax salary deferrals to buy shares.