Changes to Employee Share Schemes

The government has announced that, effective 1 July 2015, it will claw back many of the former government’s changes to the taxation of Employee Share Schemes. 

Many of the changes are directed at start-up companies. While the Treasurer will consult with industry to ensure that the draft legislation delivers the intended outcome, the following is a brief summary of the announced proposal:

All companies – 

– discounted options will generally be taxed when they are exercised (converted to shares), rather than when the employee receives them. 

Start-ups – 

– employee share scheme options or shares that are provided at a small discount by eligible start-up companies will not be subject to up-front taxation, provided the shares or options are held by the employee for at least three years;

– under certain conditions, options will have taxation deferred until sale. Shares (issued at a small discount) will have that discount exempt from tax. Criteria to define eligiblity for this concessional treatment will depend on the company:

1. having aggregate turnover of not more than $50 million;

2. being unlisted; and

3. being incorporated for less than 10 years; and 

– to give start-ups more time to be competitive and succeed, the government will extend the maximum time for tax deferral from seven years to 15 years. 

The government will also update the ’safe harbour’ valuation tables, which are used by companies to value their options, so they reflect current market conditions. 

The integrity provisions introduced in 2009 and the $1,000 up-front tax concession for employees who earn less than $180,000 per year will be retained.