Corporate executives who are remunerated via shares and options will continue to be subject to close scrutiny from the Australian Tax Office this financial year, according to Deloitte Reward partner Joe Tropeano.
"The ATO has previously expressed concerns that executive stock option and share programs pose a significant risk to revenue," said Mr Tropeano.
"In its Compliance Program for 2008-2009, the ATO's decision to extend its audit activity beyond resident executives of privately-owned companies and include foreign-owned companies implies that these concerns have been validated.
"This is not surprising. The tax rules dealing with executive options and shares are generally not very well understood. They're complex and apply differently to different taxpayers and business environments."
Mr Tropeano said that in recent years the Government has tried to fix these rules. The ATO, however, has made them more complicated, such as those covering Australian executives returning to or departing Australia and corporate takeovers. Many issues are still to be addressed, including those relating to valuing shares in unlisted companies.
"The ATO has been trying to respond to the complexities surrounding option and share plans. At times its acknowledgement and response to these issues has been slow or its response, particularly through the issue of rulings and interpretative decisions (IDs), has been contentious. While this is improving, tax practitioners have voiced significant reservations in some instances about the positions the ATO has been taking," Mr Tropeano said.
Some of the recent interpretations are not commercially practical in their application or not clearly supported by legislation. These include circumstances where taxpayers would be regarded as having shares, rather than options or rights to shares that can influence the tax outcomes.
"All of this creates a recipe for conflict as potentially there are large sums of money involved. There's also the prospect of companies having to deal with any fallout arising from targeted executives, from their employers incorrectly administering these share and option plans," Mr Tropeano said.
According to Mr Tropeano, companies that are providing shares and options schemes should be making sure that they are getting the right advice for the particular circumstances for their executives.
Executives should be satisfied that their prior disclosures reflect the current ATO position on these matters.
