Cessation of employment
When it comes to employee share schemes, there are a growing number of employees, who, when made redundant, 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, with approximately 90 per cent of plans do not vest.
There has been continued discussion on issues relating to cessation of employment - with growing recognition from both sides of Parliament that this is an issue that needs to be urgently addressed.
To positively impact this debate, EOA will address Government and the Opposition concerns by arguing the relative costs and benefits of change. We are waiting to see what the costing for changes looks like and how we can positively influence the debate in this crucial area.
Trusting in change
When it comes to employee-ownership appropriate tax law in the area of trusts is an important issue for EOA. Currently the Government is reviewing law and practice in this area. Government has made a draft Ruling in this area (draft Tax Ruling on Trusts TR 2014/D1) and is engaging with stakeholders, including of course EOA.
The draft Ruling has taxation consequences for employers, trustees and employees who participate in an employee remuneration trust arrangement (ERT). In particular, the Ruling explains how the taxation laws apply when a contribution is made by an employer to the trustee of an ERT and benefits are paid or provided by the trustee of the ERT to employees.
The Ruling may limit the deductibility of employer contributions to a trust as part of an employee share scheme.
EOA Expert’s Panel has made two key requests, that Division 83A arrangements be dealt with in a separate ruling to non-Division 83A plans to avoid the possibility that conditions that are intended to only apply to non-Division 83A arrangements applying to more common arrangements. The second request was to avoid double taxation of dividends where the dividends are not distributed in a financial year. Essentially, the Trust pays income tax in the financial year on the dividends and later the employee pays tax when the dividends are distributed to them. EOA will keep you up to date as about our progress in this area.
Employee member-owned firms
In March last year, the Australian Senate referred the role, importance, and overall performance of cooperative, mutual and member-owned firms for the Australian economy to its Economics Reference Committee. This process has now concluded and draft legislation is currently being developed.
The Committee investigated current barriers to innovation, growth, and free competition, and the impact of current Government regulation.
Of course Employee Ownership Australia and New Zealand made a submission (see it here). In the submission EOA argued that it’s clear that Australia needs to improve the way its businesses are owned in order to create higher long-term economic growth. Governments should be acting to ensure that all types of business, from large public companies to family, co-operative, mutual and employee owned firms, are able to play their part in creating wealth in a strong economy. Employee ownership needs to be promoted, and government can play a part in providing the right policy environment across the employee-ownership spectrum i.e. from employee share ownership schemes through to fully-fledged employee-owned companies.
So what’s next? On the 17th of March a report of the Committee will be presented. Once the report is out, the Commonwealth Government will have three months to respond. Will we see changes to the Corporations Act and positive change of provision of business support to assist all kinds of business forms in Australia – including employee-owned firms?
The Economics Reference Committee secretariat can be contacted on (02) 6277 3269 if you have any questions about this inquiry; EOA will keep you up to date.