Tax collection on employee share schemes examined

Revenue Minister Todd McClay has welcomed the release this week of an Inland Revenue officials’ issues paper that seeks feedback on options to simplify the way tax is collected from employees participating in employee share schemes. 

“The options presented in the paper represent a small but important step in Inland Revenue’s longer term Business transformation programme to modernise the way the tax system is administered and make it easier for New Zealanders to get their tax right,” Mr McClay says.

Employee share schemes, where employers offer shares in the company to employees, are often used to encourage staff retention and motivation.  The value of shares from these schemes is treated as an income substitute under the current tax rules, but unlike most employment income, are not subject to PAYE.  Instead, employees who receive share scheme benefits must file a tax return and account for the tax on the value of the shares themselves.

“We’re hearing that the rules are onerous for employees, who may not realise they must file a return, and may also be a deterrent to participation in employee share schemes so we are looking at options.” 

The issues paper, Simplifying the collection of tax on employee share schemes, seeks public feedback on the likely scope of the problem, and suggests possible solutions, including whether shares should be taxed at source through the PAYE or FBT rules and whether either option should be compulsory.

Officials are also interested in hearing from employers who offer scheme benefits to their employees, to find out how any possible changes to the rules might affect them, with a view to minimising any related compliance costs.

The issues paper, Simplifying the collection of tax on employee share schemes, can be found at www.taxpolicy.ird.govt.nz   

Mr McClay says feedback on issues raised in the paper will help to shape any legislative changes needed and these would be included in an upcoming bill containing tax simplification measures.  Submissions close on Tuesday 5 May 2015.