After a lengthy consultation period considering proposed changes
to the Employee Share and Option Scheme (ESOP)
rules, the Federal Government appears set to announce, as part of
its "Competiveness Agenda", changes to the ESOP rules as
they apply to "start up" companies.
In this Alert, Special Counsel Justin Byrne discusses the
Currently, it is often the case that an employee will be taxed
in the year in which he or she receives an employee share scheme
share or option. Important changes were made to the ESOP rules in
2009 which affected the ability for the tax to be deferred until a
later point in time. The Federal Government has recognised that the
changes (introduced by the previous Government) were discouraging
business expansion, particularly for "start up"
It is anticipated that the new rules will do away with tax
being paid "upfront" upon the receipt of the shares or
options in an ESOP. This would be a "win win" for both
employer companies, as well as employees. The change would be
welcome for companies seeking to grow their businesses through
employee share ownership, rather than cash based incentives.
It remains to be seen whether, as part of the proposed changes,
tax will be payable at a future point in time, for example as a
taxable capital gain upon eventual sale of the shares or
As part of the consultation process, the Government considered
various options, including the model adopted in the United Kingdom,
whereby no tax is payable on the receipt of employee share scheme
shares or options up to a maximum value of £250,000.00 per
employee (and subject to a maximum £3 million in total for
the employee share scheme), provided that the company in which the
employee is receiving shares or options has gross assets valued at
£30 million or less.
Draft legislation has not yet been released, however its
release is expected in the very near future.
If the proposed changes are as anticipated, there is likely to
be a very substantial benefit for companies adopting employee share
schemes under the new rules.
Long experience representing many of Australia's leading employers has taught us that in employment litigation the identity of an employee's representative is a major factor in how employee litigation runs.
Australian employees receive certain entitlements (such as annual leave and superannuation) where contractors do not.
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