Plain language law

New Zealand law explained for everyone

Income Tax Act 2007

Income - Employee or contractor income

CE 2: Benefits under employee share schemes

You could also call this:

“Income from shares or share rights received through your job”

You can get a benefit from an employee share scheme. This happens when you get shares or rights to shares from your job. To work out the benefit, you use a special calculation on the day when the shares become taxable.

The calculation looks at how much the shares are worth, what you paid for them, what you got for them, and any income you’ve already declared. If the result is positive, that’s your benefit. If it’s negative, you can claim it as a deduction.

Part of your benefit might not be taxed in New Zealand if you worked overseas during the time you earned the shares. There’s another calculation to figure this out.

Your employer needs to tell the tax department about this benefit. Even though you get the benefit earlier, you’re treated as getting this income on a date called the ESS deferral date. This date is 20 days after the day your shares become taxable.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1512781.

Topics:
Money and consumer rights > Taxes
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Part C Income
Employee or contractor income

CE 2Benefits under employee share schemes

  1. A person who is an employee share scheme beneficiary described in section CE 7(a)(i) or (ii) receives a benefit for the purposes of section CE 1(1)(d) in relation to shares or related rights under the employee share scheme equal to the positive amount calculated on the share scheme taxing date using the formula—

    share value − consideration paid + consideration received − previous income.

    Where:

    • In the formula in subsection (1),—

    • share value is the market value of the shares or related rights owned by an employee share scheme beneficiary on the share scheme taxing date, if the share scheme taxing date is not triggered by a transfer or cancellation of the shares or related rights:
      1. consideration paid is the amount of consideration paid or payable by an employee share scheme beneficiary in relation to the transfer of the shares or related rights under the employee share scheme:
        1. consideration received is the amount of consideration paid or payable to an employee share scheme beneficiary in relation to a transfer or cancellation of the shares or related rights under the employee share scheme, not including relevant shares or related rights under a replacement employee share scheme:
          1. previous income is the total amount of income under section CE 1(1)(d) that the employee share scheme beneficiary has in relation to the shares or related rights before the date that is 6 months after the date of Royal assent for the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018.

            1. A negative amount calculated using the formula in subsection (1) is a deduction of the person.

            2. A positive or negative amount calculated using the formula in subsection (1) is added to the consideration paid by the person for acquiring the shares, for the purposes of section DB 23 (Cost of revenue account property).

            3. For the person’s benefit under subsection (1), the portion of that benefit calculated using the formula is treated as non-residents’ foreign-sourced income—

              benefit before reduction × offshore period ÷ earning period.

              Where:

              • In the formula in subsection (5),—

              • benefit before reduction is the amount of the benefit under subsection (1):
                1. offshore period is the number of days in the item earning period on which—
                  1. the person is not resident in New Zealand; and
                    1. any services the person performs for the relevant employer give rise to an amount of income that is a foreign-sourced amount:
                    2. earning period is the period ending with the vesting of shares or relevant rights in the employee share scheme beneficiary and starting with the earlier of—
                      1. the first date used to measure the person’s right in relation to the vesting of shares or relevant rights:
                        1. the first date that the person has a right in relation to the vesting of shares or relevant rights.

                        2. Subsection (8) applies when an employer is required to provide employment income information under sections RD 22(3) (Providing employment income information to Commissioner) and 23E to 23H of the Tax Administration Act 1994, as modified by section 23K of that Act, in relation to a benefit received under an employee share scheme.

                        3. Despite section CE 1(1)(d), the employee share scheme beneficiary is treated as deriving employment income in relation to the benefit on the ESS deferral date.

                        4. For the purposes of this section and sections RD 6 and RD 7B (which relate to employee share schemes), the ESS deferral date is the 20th day after the share scheme taxing date for the employee share scheme beneficiary.

                        Notes
                        • Section CE 2: replaced, on , by section 19 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                        • Section CE 2(7): replaced, on , by section 20(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                        • Section CE 2(8): amended, on , by section 20(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                        • Section CE 2(9) heading: inserted, on , by section 20(3) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                        • Section CE 2(9): inserted, on , by section 20(3) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                        • Section CE 2 list of defined terms employer monthly schedule: repealed, on , by section 20(4)(b) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                        • Section CE 2 list of defined terms employment income information: inserted, on , by section 20(4)(a) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                        • Section CE 2 list of defined terms ESS deferral date: inserted, on , by section 20(4)(a) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                        • Section CE 2 list of defined terms PAYE income payment form period: repealed, on , by section 20(4)(b) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).