A Bill containing amendments to the taxation arrangements of employee share schemes previously announced in October 2014 has now been introduced into Parliament. The aim of the proposed law is to support innovative start-up companies in Australia, and to improve the taxation arrangements for employee share schemes to be more internationally competitive. The Bill includes some welcome improvements from the Exposure Draft legislation released for public submissions in January 2015. We will continue to monitor the progress of the Bill.
On 25 March 2015, a Tax and Superannuation Laws Amendment (Employee Share Schemes) Bill 2015(Bill), which amends the taxation of employee share schemes and provides for welcome improvements to the Exposure Draft legislation released in January, was tabled before Parliament. See G+T Client Alert dated 19 January 2015 for detail on the release of the Exposure Draft legislation.
The more significant changes since the Exposure Draft legislation relate to the concessional treatment offered to eligible start-ups. Specifically:
- start-ups in receipt of venture capital funding from venture capital limited partnerships or early stage venture capital limited partnerships will not have their turnover aggregated with other portfolio companies when determining the $50 million aggregated turnover test for start-up eligibility. This is welcome news as this issue was identified by the G+T Tax team in its submission to Treasury identifying and providing potential solutions to the issue;
- participating employees may be eligible for a capital gains tax (CGT) discount on their options (or resulting shares) once they have held their options for 12 months. Exercising the options will not “reset” the CGT discount clock;
- qualifying start-ups will also be able to provide employees with at-the-money options, with taxation deferred until the time of sale of the resulting shares (where the gain on the ultimate disposal will be subject to CGT, with the potential application of the CGT discount); and
- in order to obtain the benefits of the start-up concession, the scheme must be structured such that participants must hold their interests for 3 years, or until cessation of employment. In circumstances where 100% of the shares in the issuing company are sold, the Commissioner will have a discretion to waive the 3 year holding period requirement where certain criteria are satisfied.
These changes will apply to grants of shares and options on and after 1 July 2015.