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More thought needed on employee share scheme proposals

04 July 2016

Not enough thought seems to have been given to the practical issues which will flow from enacting new employee share scheme taxation rules, the New Zealand Law Society says.

Commenting on an Inland Revenue issues paper on taxation of employee share schemes, the Law Society says they are widely used in New Zealand by a multitude of different employers and a large number of taxpayers participate in them as employees.

"It is imperative that proper consideration is given to the impact that new employee share scheme rules will have on participants before new rules come into effect," it says.

The changes proposed by the issues paper will create a large number of practical issues that employers and their employees will need to grapple with.

Many of these issues are not discussed in the issues paper, the Law Society says, but they will be fundamental to the successful implementation of new employee share scheme legislation.

The issues paper does not discuss the interplay between the employee share scheme rules it is proposing and other legislation relevant to them, such as securities law and employment law.

The issues paper does not consider what will happen when a company has multiple employees who qualify for their employee share scheme shares at different times. 

"Would, for example, there be a requirement that a company valuation be performed each time a Qualification Date for an employee arises?" the Law Society asks.

The issues paper also does not deal with the situation where employees progressively acquire shares under an employee share scheme at different times.

"There is no discussion of how dividend returns payable in relation to shares in an employee share scheme will be taxed while the employee is qualifying for the shares. 

"Little attempt is made to identify or quantify the compliance costs that will arise for employees."

The Law Society says it understands that it is proposed for the new rules to be implemented during 2017.

However, the Law Society says "it is critical" that the implications and practical issues are properly thought through and addressed before legislation in relation to employee share schemes is introduced.

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Last updated on the 4th July 2016