Most Read Contributor in Australia, September 2016
The Federal Government has announced proposed taxation reforms
to Employee Share Option Plans (ESOPs).
Under the proposed changes employees who receive an option under
an ESOP will not be taxed until the option is exercised (that is,
converted to shares). Also, for eligible companies employees who
exercise options may defer taxation until sale of the associated
To be eligible, companies will have to have an aggregate
turnover of not more than $50 million, be unlisted and incorporated
for less than 10 years.
The changes are proposed to bolster entrepreneurship and support
innovative start-up companies. The reform will reverse the 2009
taxation changes to ESOPs.
ESOPs provide employees a financial incentive in the development
and success of a company. As such, ESOPs assist start-up companies
to attract and retain high-quality staff.
The Federal Government intends to amend the taxing point for
ESOPs. This means that the taxing point of options will be deferred
until the exercise of the option (converted to shares), rather than
when the option is received.
The reforms mean that companies will be able to remunerate staff
with ESOPs without placing upfront taxation burdens on them.
The reforms will also allow eligible companies to provide ESOPS
at a small discount that will not be subject to up-front taxation,
where the ESOP is held by the employee for at least three years.
Instead, options under certain conditions will have taxation
deferred until sale and issued shares will have the discount exempt
The maximum time for tax deferral under ESOPs will also be
extended to 15 years.
The legislation is proposed to come into effect on 1 July
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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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