Crackdown on share tax breaks in doubt

The Federal government has stepped back from its budget crackdown on the tax breaks that come with employee share schemes.

That happened when the Assistant Treasurer, Chris Bowen, admitted that the government’s initial response had  been clumsy.

He said it could – and would – be “better calibrated.”

The government had proposed, initially, to prevent people benefiting from these schemes defererring their tax liabilities.

It also declared that it would restrict a tax exemption of $1,000, for those who pay up front, to people earning less than $60,000 a year.

Mr Bowen told parliament late yesterday that these schemes had, in fact,  become significant avenues for tax avoidance.

He said a Tax Office audit had shown that just two people had been able to avoid paying a combined tax debt of more than $1 million by using these tax breaks.

The Federal Treasury has estimated that the government would raise an extra $200 million in tax, over the next four years, as a result of the crackdown.

But a storm of protest, from both business and unions, followed the government’s announcement, on budget night.

That forced the Treasurer, Wayne Swan and Mr Bowen to issue a joint statement, earlier thia week, conceding that the government would take another look at the matter.

They also said then it would release a fresh “policy options” paper within a fortnight.

However Mr Bowen told parliament yesterday that most, but not all,  of the people who had lodged protests on the issue, had admitted that the tax breaks did involve genuine problems with revenue leakage.

He said they must  be fixed.

The ATO and the Treasury are both worried about the matter.

There are, essentially, two kinds of employee share ownership schemes.

These are the narrow ones, restricted to senior management and broad schemes, benefiting permanent employees, working both full and part time.

The two scoundrels, who each managed to avoid about $500,000 in tax, through these breaks, were both executives. Broad schemes simply don’t involve that kind of money.

That much, at least, is clear, even though Mr Bowen refused to name the miscreants, in parliament.

He said doing so would be improper, under the secrecy provisions of the Tax Act.

So what happens now?

Watch this space.