Better Tax Treatment for Options and Tax-Favored Treatment for Start-Ups

On October 14, 2014, the Australian Government announced long-awaited changes to the taxation of employee share plans. The legislation is to be developed in consultation with industry and should come into effect on July 1, 2015.

For many companies, the most important change is that options generally will be taxed at exercise, rather than at vesting.  In addition, for start-up companies (to be further defined in the legislation), favorable tax treatment will be available for options and other share awards.  The employer reporting obligations that were introduced in 2009 will continue to apply. 

It is uncertain how the new legislation will affect outstanding awards (or awards granted before July 1, 2015).  Therefore, companies should continue to carefully consider whether to grant options before the new legislation comes into effect.