India, Australia Ease Path for Employee Ownership Plans

India's government has announced that it will eliminate the fringe benefit tax (FBT) on equity awards retroactive to April 1, 2009. Under a 2007 rule change, the FBT (34%) was imposed on the gain realized from the exercise of stock options, stock purchase plans, or other equity plans by employees. Employers could pass the tax on to employees. That widely unpopular rule has now been changed back so that employees are subject to the tax at capital gains rates for qualified plans and ordinary income tax rates for non-qualified plans.

The Australian government has also backed away from its proposed changes to the taxation of options and restricted stock units. The new rules would have considered the grant of the award a taxable event except for certain broad-based plans meeting both qualification provisions and containing a genuine risk of forfeiture. That proposal received considerable opposition. Now the government is proposing that all awards be taxed at exercise, provided there is a genuine risk of forfeiture. Companies would still have a reporting event on grant, however. Details on the proposal can be found at this link.