Tax exempt threshold changes to benefit startups

Technology companies are among the startups which will benefit from increases to current thresholds of exempt employee share schemes, Science, Innovation and Technology Minister Judith Collins and Revenue Minister Simon Watts say.

Tax exempt thresholds for the schemes are increasing as part of the Taxation (Annual Rates for 2024-25, Emergency Response, and Remedial Measures) Bill, which has had its first reading in Parliament.

The Bill proposes increasing the thresholds relating to exempt employee share schemes to recognise the effect of past inflation and to provide a buffer against future inflation.

"The changes adjust for inflation and lift the tax exempt thresholds of these schemes, which could boost recruitment and help early-stage companies, including startups, to succeed," Ms Collins says.

"This is the first step towards meeting our commitment of supporting startups by looking at changes to the tax system.

"We are committed to rebuilding the economy, and this is one of the many levers we will use to achieve that."

New Zealand's tech sector contributed $22.56 billion to GDP in 2023, employing nearly 119,500 people in 25,500-plus businesses.

"The Bill proposes lifting the maximum value of shares offered to employees under the scheme from $5000 to $7500 a year, and raising the maximum discount an employer can provide on the market value of those shares from $2000 to $3000," Mr Watts says.

Employee share schemes are arrangements where shares in an employer company are provided in whole or in part in return for services.

They are a tool employers use, particularly in the startup and tech sector, to align employees' work incentives with the economic goals of their employers.

"We are also looking into aspects of the Foreign Investment Funds regime as we work to grow economic investment and productivity. Public feedback on this will be considered as the Government reviews the Tax and Social Policy Work Programme," Mr Watts says.

Notes to Editors:

Exempt Employee Share Schemes allow employers to provide exempt benefits to employees. Strict eligibility criteria under section CW 26C of the Income Tax Act 2007includes, among other things, the following conditions:

• the maximum market value of the shares provided to an employee is $5000 a year
• the maximum discount an employer can provide on the market value of the shares to an employee is $2000 a year, and
• 90% or more of full-time permanent employees who are not subject to the securities law of other jurisdictions must be eligible to take part in the scheme.

In recognition of the impact of inflation since the thresholds were last set, and to provide a buffer against future inflation, the proposed amendments in the Taxation (Annual Rates for 2024-25, Emergency Response, and Remedial Measures) Billwould increase:

• the maximum market value of the shares provided to an employee to $7500 a year, and
• the maximum benefit that can be provided to $3000 a year.

The proposed amendment would be effective for offers of shares made under exempt employee share schemes on and after 1 April 2025.

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