It is fair to say that at this stage of the game, there are more
losers than winners based on the Abbott Government's long
awaited Industry Innovation and Competitiveness Agenda. Sure there
are some clear winners but for some key players in the economy,
there is no relief currently in sight from long standing issues
affecting share plans.
The clear winners are private "start-up" companies
defined as unlisted, incorporated for less than ten years and with
an aggregate turnover of less than $50 million. Broadly, it is
proposed that employees of start-up companies can normally defer
tax when options are provided to when the shares are sold and then
be subject to capital gains tax (and if they get the timing right)
with a 50% discount rather than income tax.
Employees of eligible start-up companies can be offered shares
at a discount up to 15% and not pay tax at that point. Again
capital gains tax will apply when the shares are sold.
Under the proposed changes effective from 1 July 2015, employees
generally won't have to pay tax on options until they are
converted to shares. This is very good news for employees of
unlisted companies as it gives them control on when to crystallise
a tax liability. Under current rules they broadly pay tax when any
restrictions (risk of forfeiture) relating to the options are
The clear losers are private companies that do not meet the
definition of "start-up" company and small cap listed
companies. This covers a significant number of employees for who
the proposed changes mean little if anything.
Employees who leave their employer will continue to trigger a
taxing event at that point in relation to share plans. For
employees of private companies this can be a real problem when
there is no liquid market for their shares to raise cash to pay a
Employees issued with shares rather than options will not get
the same advantageous tax deferral.
What hasn't changed?
The tax rules are still going to be difficult and complex
including another transitional period to navigate. In addition,
there are restrictive corporation laws requiring a prospectus to be
issued for anything other than small scale offerings.
The tax rules in place prior to 2009 when the Labour Government
changed the rules still had issues that were an impediment to wider
share scheme participation. There is no indication at this stage
whether these issues will also be addressed.
There will still be a large number of companies that will remain
sceptical about the practical benefits of putting a share plan in
place. However, there are practical solutions that have been
developed since the rules were changed in 2009.
We welcome the direction of the proposals however; there are a
number of unresolved issues in relation to the Government's
announcement. We plan to consult with the Treasury in relation to
The income tax treatment of any property lease incentive will vary, depending on the nature of the inducement provided.
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