This special report provides early information on changes to the tax rules affecting the collection of tax on benefits an employee receives from an employee share scheme. Benefits provided to an employee under a share purchase agreement are “employment income” for income tax purposes.
The Income Tax Act 2007 and Tax Administration Act 1994 have been amended by integrating employment income in the form of employee share benefits into the PAYE (pay as you earn) system. The changes were introduced in the Taxation (Transformation: First Phase Simplification and Other Measures) Bill enacted on 2 June 2016. Information in this special report precedes full coverage of the new legislation that will be published in the August edition of the Tax Information Bulletin.
Employers are now responsible for reporting share benefits under an employee share scheme.
Employers have a choice about whether tax is withheld on such benefits.
The changes are designed to remove problems facing some employees with meeting their tax obligations in relation to these benefits, and improve the integrity of the tax system by reporting income information at its source.
The general PAYE collection rules in the Income Tax Act and disclosure rules in the Tax Administration Act have been changed to:
- allow employers to choose to use the PAYE system and withhold tax on any employment income an employee receives under a share purchase agreement using the PAYE system; and
- require employers to report the value of any benefits an employee receives under a share purchase agreement via the employer monthly schedule (EMS).
Consequential changes have also been made to the Accident Compensation Act 2001 and the KiwiSaver Act 2006 to ensure that share benefits are not counted as employment income under these Acts.