Employee Share Schemes (ESS) are a key tool for start-ups to attract talent by offering shares instead of high salaries. However, current tax rules require employees to pay tax on these shares when they are issued, even though they often can’t be sold, creating “dry” tax bills and complex valuation challenges.
The Taxpayers’ Union proposed deferring tax until a liquidity event, such as when shares can actually be sold. We recommended giving companies the option to adopt deferral, while allowing employees the choice to pay tax earlier if they wish. We also called for broader reforms, including lower tax rates, full capital expensing, and changes to investment rules to better support innovation.
This matters because current settings make it harder for start-ups to compete for talent and grow. Fixing ESS taxation would reduce financial pressure on employees, attract investment, and support a more productive, innovation-driven economy for New Zealand.
