Proposed Amendments to Tax Laws

The Government has introduced a Bill into Parliament seeking to:

• make changes to the taxation of employee share schemes;
• tighten the application of the non-commercial losses rules; and
• require superannuation providers to transfer the balance of a lost member’s account to the Commissioner

A brief discussion of the important changes follows.

Employee share schemes

Under the proposed amendments, any discount to the market value of an employee share scheme (ESS) interest will be taxed upfront. A $1,000 tax exemption will be available if an employee and the scheme satisfy the following conditions:

• the employee has an adjusted taxable income of $180,000 or less;
• the employee is employed by the company (or its subsidiary);
• the scheme is offered to at least 75% of Australian resident permanent employees with three or more years service;
• the ESS interests provided must not be at real risk of forfeiture;
• the ESS interests offered under the scheme must relate to ordinary shares;
• the shares or rights must be held by the employee for three years; and
• the employee must not receive more than 5% ownership or control more than 5% voting rights in the company.

An employee can only defer the tax payable on the discount if:

• the ESS interests relate to ordinary shares and are subject to a real risk of forfeiture; or
• the ESS interests are acquired under a salary sacrifice arrangement, and the employee receives no more than $5,000 worth of shares in an income year.

The Bill proposes that employers will be able to deduct an amount for shares or rights they provide to employees under an ESS if the scheme meets the conditions for employees to receive the upfront concession. However, the income test of $180,000 is disregarded.

The amendments will apply to ESS interests acquired on and after 1 July 2009. 

Non-commercial losses

Currently, an individual who is carrying on a business either as a sole trader or a partner in a partnership can only apply losses arising from the business activity against their other income in an income year if the activity satisfies one of four objective tests. (Note special rules apply to taxpayers conducting a primary production or a professional arts business.)

The Bill will amend the non-commercial losses rules to prevent individuals with an adjusted taxable income of $250,000 or more in an income year from offsetting losses from non-commercial activities against their salary, wages or other income. That is, individuals with an adjusted taxable income above the threshold cannot access the tests. However, an individual can apply to the Commissioner to exercise the discretion not to apply the non-commercial losses rules.
The proposed amendments will apply to the 2009/10 and later income years.