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Issues paper on taxation of employee share schemes for start-ups

Revenue Minister Judith Collins has today welcomed the release of an officials’ issues paper on the taxation of employee share schemes for start-up companies.

“Employee share schemes are an important remuneration tool for start-ups as they can assist companies to both attract and retain talented staff. However, it is equally important that employee share schemes are taxed like any other form of remuneration.

Generally, employees who receive free or discounted shares from their employer are taxed on that benefit when they acquire the shares.  If the employee is receiving a large proportion of their remuneration in this way, paying the tax can be difficult.  Even valuing the shares can be difficult, if the company is in the early stages of development.

The officials’ issues paper, Taxation of employee share schemes: start-up companies sets out proposed deferral rules aimed specifically at start-up companies with employee share schemes. 

The deferral rules would delay the time when the employee recognises income from the benefit.  Generally the employee would not have income unless and until the shares are sold or listed on a stock exchange.  There would be a seven year limit on the deferral.

“Shares in start-up companies can often be difficult to value or sell, making it hard for employees to meet their tax liabilities when they become the full owner of the shares. Deferring the taxing point should ease that problem,” says Ms Collins.

The issues paper follows the development of new rules for taxing employee share schemes that were included the recently introduced Taxation (Annual Rates for 2017-18, Investment and Employment Income, and Remedial Matters) Bill.  These recommendations:

  • ensure that employee share scheme benefits are taxed in a similar way to equivalent cash remuneration
  • prevent benefits equivalent to share options being provided tax free
  • give employers a deduction matching the employee’s income
  • expand and modernise the tax exemption for widely offered share schemes.

“The proposals contained in the issues paper are aimed at greater fairness without penalising start-ups,” Ms Collins says.

Submissions on the consultation document at, close on 12 July 2017.