The way that employee share schemes (ESSs) are taxed has
changed, so if you've been thinking about putting an ESS in
place or issuing shares or options under an existing ESS, now might
be the time to do it.
A few of the (relatively) more exciting changes:
Deferred tax. The time at which options are
taxed has been deferred to when they are exercised(iewhen the
employee receives the value) rather than the time they
"vest" or become exercisable. The maximum period of
deferral has also been extended to 15 years (from 7). This is a
major improvement –basically, qualifying employees won't
get a tax bill now until they're actually in the money.
Small start-ups. Further tax concessions will
be available to employees of "small" start-ups who
receive ESS interests which meet certain conditions. In this case,
incorporated for less than a decade; and
with turnover of $50 million or less.
Safe harbour valuation methods.It's been
made easier for smaller unlisted companies to value their shares
for the purposes of an ESS.
In case you're still not convinced, the ATO has released a
template ESS offer letter and plan rules to make it even easier for
employers (particularly start-ups) to establish an ESS involving
the grant of options. These should be used with care, however, as
they reflect a "plain vanilla" approach and more work
will be required to get the right mix of sprinkles to suit your
The ESS tax law changes follow ASIC's introduction last year
of class order relief from Corporations Act requirements relating
to ESSs. The regulators are clearly intent on making ESSs less of a
minefield and a more attractive proposition for start-ups in
particular, in line with government policy which supports employee
share ownership as a generally good thing. It's still a bit
head-spinning, but at least they're trying.
We do not disclaim anything about this article. We're
quite proud of it really.
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