Since 1 April this year, new tax rules have applied to share purchase benefits provided by an employer to an employee.

In this case, a benefit occurs when the amount the employee pays for the shares is less than market value. IRD then sees this as employment income.

Before 1 April, a benefit received from a share purchase agreement was subject to neither PAYE nor FBT. The employee had to file a tax return including the benefit and pay the tax on it.

IRD had compliance concerns with the old method as there was no transparency around when employee share scheme benefits were received by employees and also considered the previous system restricted the use of employee share schemes. There was uncertainty, a degree of unfairness, and there could be either under-taxation or over-taxation.

Now an employer can choose to withhold tax on income a staff member receives under a share purchase agreement. The employer also has to report to IRD in the employer monthly schedule (EMS) the value of any benefits an employee receives under a share purchase agreement.

If you want to know more, contact us.