16 January 2015
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Exposure draft legislation consultation
Exposure draft legislation for
employee share schemes released
Better treatment for options and concessions for
employees of eligible start-ups
On 14 January 2015, the Australian Government released exposure
draft legislation impacting the taxation of employee share schemes
(ESS). The Government has invited submissions on the draft
legislation to be provided by 6 February 2015. We would be happy
to assist if you would like to make a submission.
If the proposed changes are legislated, we recommend you review
your applicable plans to ensure they are equipped to take full
advantage of the changes. If enacted, the new rules will apply to
ESS interests granted on or after 1 July 2015.
Changes to the taxation of ESS interests
The draft legislation seeks to improve the taxation of ESS interests
by reversing certain changes to the ESS rules that were introduced
in 2009. The most notable changes under the proposed law are:
the deferred taxing point for ESS interests that are rights will
be when the employee exercises their right (or later if the
underlying share is subject to a real risk of forfeiture or
disposal restrictions), rather when the employee can
exercise their rights (generally at vesting);
tax deferral can be accessed even where a right is not
subject to a real risk of forfeiture if the scheme expressly
states that the scheme is subject to deferred taxation and
genuinely restricts immediate disposal of the right;
the maximum deferral period for ESS interests will be
increased from seven years to 15 years;
an employee will be entitled to a refund if they allow their
rights to lapse unexercised;
the ownership and voting right limits will be relaxed from 5%
to 10% (subject to certain integrity rules).
Concessions for start-ups
Further concessions are also proposed for eligible start-ups (broadly
an unlisted company with a turnover of not more than $50 million,
that has been incorporated for less than ten years).
The proposed concessions include:
an income tax exemption for the discount received on certain
the deferral of the income tax on the discount received on
certain rights which are instead taxed under the capital gains
Certainty of valuation methods and standardised documents
The draft legislation also seeks to reduce compliance costs for
companies by providing the Commissioner with powers to approve
safe harbour valuation methodologies and standardised document
procedures. We understand it is initially intended that valuation
methods will be developed for use by small unlisted companies.
The ATO will also work with industry and ASIC to develop
standardised documentation that will streamline the process of
establishing and maintaining an ESS.
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