What the Federal Budget means for SMEs? PART 2

taxabull — Wed, 20 May 2009 10:21:00 +0000

This is the second of a series of articles on the impact of the recent May 2009 Federal Budget on small-medium enterprises (SME) in Australia.

EMPLOYEE SHARE PLANS

The government introduced a radical change to the tax treatment of employee share & option plans for those earning more than $60,000 per year.

OLD WAY

Previously, employees were given the choice of either being taxed on the value of the shares when they receive the shares / options or at a later date when the shares / options are actually exercised.

An upfront election also allowed the employee to receive $1,000 of the allotted shares / options tax-free.

NEW WAY

As at 12 May 2009, for those earning over $60,000, employee share/option plans will become 100% taxable at the moment which they were granted to the employees. The employee will also lose the $1,000 tax-free component.

Providing employees an equity ownership benefit is a relatively “cheap” way for SMEs to retain highly skilled but expensive employees without burdening their actual cashflow.

However, this budget amendment will raise challenges to SMEs trying to retain highly skilled executive staff. They would have to structure their employee incentive plans accordingly.

UPDATE

The government has come under fire from all directions for their decision to implement this change. We will keep everyone updated on the developments.

END OF PART 2

OF THE SME BUDGET SERIES

CLICK HERE FOR PART 3

From the AusTax team.

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Taxabull » employee share schemes

What the Federal Budget means for SMEs? PART 2