Broadly, the proposed changes to the ESS tax regime are as
Reversal of the changes made in 2009 to the deferred taxing
point for ESS options. This is proposed to apply to all companies
and would mean that discounted options are generally subject to tax
when they are exercised (converted to shares), rather than when the
employee receives the options, i.e. when the real risk of
forfeiture over the options is lifted.
Update to the 'safe harbour' valuation tables, which
are used by companies to value their options, so they reflect
current market conditions.
For eligible start-up companies, the following
ESS options or shares that are provided at a small discount
will not be subject to up-front taxation, provided the shares or
options are held by the employee for at least three years;
rather, ESS options will have taxation deferred until sale
(under certain conditions) and shares issued at a small discount
will have that discount exempt from tax; and
the maximum time for tax deferral will be extended from 7 years
to 15 years.
Companies that have an aggregate turnover of not more than $50
million, is unlisted and has been incorporated for less than 10
years are eligible start-up companies and qualify for this
The integrity provisions introduced in 2009 and the existing
$1,000 up-front tax concession for employees (who broadly earn less
than $180,000 per year) will be retained.
The Government is expected to consult with industry on draft
legislation, with legislation proposed to come into effect on 1
The announcement is generally well-received by the private
sector at large. The reversal of the changes and updating the
'safe harbour' valuation tables is in line with commercial
practicality and the proposed tax concessions for start-ups may
assist making Australia more competitive in the market for investor
capital in this industry.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The income tax treatment of any property lease incentive will vary, depending on the nature of the inducement provided.
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