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NZ Reviews Tax On Employee Share Schemes

by Mary Swire,, Hong Kong

03 April 2015

New Zealand's Revenue Minister, Todd McClay, has welcomed the release of a paper from the Inland Revenue 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 program to modernize the way the tax system is administered and make it easier for New Zealanders to get their tax right," McClay said.

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, is not administered under the pay-as-you-earn (PAYE) regime. 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 realize they must file a return, and may also be a deterrent to participation in employee share schemes, so we are looking at options," McClay said.

The issues paper seeks public feedback on the scope of the problem and possible solutions, including whether shares should be taxed at source through the PAYE or fringe benefit tax (FBT) regimes 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 minimizing any related compliance costs.

The deadline for submitting feedback is May 5, 2015.

TAGS: compliance | tax | interest | share schemes | employees | New Zealand | individual income tax

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