The federal government announced changes to share ownership schemes in the budget, but appears to be backing down on them as a result of union pressure. http://www.abc.net.au/news/stories/2009/05/25/2579791.htm?section=business

It surprised me how many Australians seem to get the benefit of these schemes and I wondered how many on this forum would be affected by changes.

Klaas Woldring has been advocating them for years through articles on our site http://tinyurl.com/nym4fj but I had no idea how widespread they appear to be.

Apparently there is an element of tax deferral with these schemes, which seems to me to be entirely inappropriate no matter how large or small your income.

Of course, those of us who own businesses, as long as they are successful, often earn less regular income, but enjoy the tax deferred benefits of capital gains, which might be seen as inequitable by some.

Suggests to me that we're best off taxing income lightly and taxing spending more heavily, then the inducements to enter into schemes is much lower.

Graham, I think you may have missed the mark.

>>Apparently there is an element of tax deferral with these schemes<<

Under the original proposal, if I gave my employees options to buy shares in my company at a discount, they would be immediately liable to pay tax on that discount.

So let's assume I grant them options to buy 1,000 shares at $1.00 instead of their current price of $2.00, they would be immediately liable for tax on $1,000.

If the shares then tank, my employees have had no advantage from my share scheme, but instead have had the privilege of paying tax on money they haven't received.

Now, you may say "that's your fault for running a crappy company", but the new rules destroy the attraction of the option scheme in the first place. Negative cashflow immediately, for a benefit that may never materialise.

That's why there has been such a reaction. An active disincentive for me to give my employees a stake in the business.

But unfortunately, a typically short-sighted policy. Which is all you can expect from Canberra, where they haven't a clue how business is run.

GrahamY

Sorry mate this is another politically partisan dig. Last time I looked there are changes to be made.
The point was made the changes were to catch the OT behaviours (rorting?)of the executives. not the ordinary folk.
we both know that it will change to protect the worker's interests.

apart from which The previous post is right.

I would have been effected in the past but not now.

I agree with you GrahamY. Entirely inappropriate.

Pericles, the problem is more complex than you make out. There are two issues. Firstly, there is the problem you allude to, which is you don't want to have to pay the tax on the shares upfront. I have some sympathy for that. The ATO argues it creates an accounting nightmare though - and they are right. Perhaps the solution is for you to hold the shares in trust for the employees, and make you deduct and forward the outstanding tax when the employee sells them. That way the nightmare lies with you, who created the scheme. Seems reasonable to me.

The second problem is worse. After a certain period of time the taxable capital gain you get from selling the shares drops by 50%. If the employees sell after that period they have effectively 1/2'ed their taxable income. Probably the real issue here is the bias towards shares as an investment in the first place. Even though I benefit from it, it sounds like a tax break for the rich and wealthy to me.

If you are trying to get people at the lower end of society into the capitalist system and off welfare, you need to ensure every cent they earn ends up in their pocket. Those of us already earning far more than we could make from government handouts don't need those sorts of incentives. Yet the scheme as it was does just that. The richest people earn most of their income through stock options. And by taking advantage of this loophole they could reduce their effective tax rate to less than middle class Australians pay.

When its all said and done, someone screwed up the tax system. And it needs to be fixed. They are fixing it by making the system even more complex, as is usual, which is something I dislike. But it is better than doing nothing.

Sounds like a lot of complexity is involved to me.

While a bit off topic, why not raise the GST by 10% and use the extra windfall to forgo lots of other ad hoc, economically distortionary and inefficient taxes/charges/levies? Also take the opportunity to simplify taxation in general so that it follows a clear set of principles. This might mean scrubbing some taxes/charges/levies altogether, reforming others and introducing new ones (like an increase in the GST).

The only big losers will be those inside the system that can best exploit the current system of myriad legislation.

Shared ownership is a system to increse the wealth of the wealthy and to con the poor that they own a property.
The poor who live in these homes, paint and repair, while the real owners, Banks, Super funds and investors can trade these properties at will without revealing to the poor mug shared owner who is currently the owner.
Lets say the Southern China Triad Group or the Mafia Columbia Group.
When the time is right and they want the Mug shared owner to move out, they will force the rate up or make life rough on them.
The New Yorker's had a Shared ownership system for new immigrants.
In Australia, we had Vendor Terms,both systems allowed for the explotation of the poor.
Block Busting is the term used in the USA for getting people out of a residence.The owner would put a whore next door or smash your windows regularly.
Shared Ownership no thank you.