In recent years, employee share or option plans have fallen out of favour due to a combined effect of taxation implications for employees and regulatory requirements affecting the offering of securities to employees. This article looks at changes in the pipeline to rewrite the regulatory requirements overseen by the Australian Securities and Investments Commission (ASIC) to make the offering of employee share/option plans a little easier.

What is changing?

Currently, ASIC has given class order relief (CO 03/184) which gives conditional regulatory relief to companies which offer employee share or option plans (ESOP’s). This relief alleviates the need for licensing and a compliant disclosure document and extends relief to advertising and share hawking relief. The ASIC has decided that in view of ESOP’s becoming more varied and sophisticated, that it is preferable for ASIC to update CO 03/184 and its Regulatory Guide (RG) 49 to enable relief to apply to a broader range of ESOP’s.

What are the changes?

ASIC, via Consultation Paper 218, has taken a reformist approach and is proposing to update RG 49 and CO 03/184 so that these kinds of ESOP’s can be offered by employees:

Click here to view table.

What is changing?

The ASIC consultation paper is open for comment until 31 January 2014. ASIC predicates that the paper will be supported and that a new class order and RG will be in place around May 2014. Based on this, ASIC contemplates a non-active monitoring role over ESOP’s. A standard ASIC notifi cation form will be prepared by ASIC and issuers of ESOP’s will be required to lodge a completed form with ASIC giving an outline of each ESOP made, based on the issuer’s compliance with the new ASIC class order.

How does ASIC’s initiative fi t in with tax treatment of ESOP’s?

The ASIC initiative of expanding relief for ESOP’s coincides with planned changes to the taxation treatment of ESOP’s.

The Australian Taxation Offi cer’s (ATO) position on the taxation of ESOP’s has been in place since 1 July 2009. The main change introduced in 2009 was the removal of the election available to employees to defer income treatment on ESOP securities for up to 10 years. The resultant impact was for many companies to terminate or suspend their ESOP’s, rather than comply with new ATO reporting requirements and the increased complexity of administration of ESOP’s.

The ASIC’s relief to unlisted companies offering employees up to $1,000 worth of shares per annum (see table – Securities with restrictions for unlisted companies) does mesh with the tax benefi t exemption for employees with an annual income of $180,000 or less per annum.

In summary, the complexity of ATO requirements applicable to ESOP’s may still be an obstacle to both employers and employees reinvigorating their interest in ESOP’s.

Taxation reform for ESOP’s

An optimistic observation to be made from ASIC’s policy review of ESOP’s is that it is putting in place the framework for an overhaul of the current tax treatment of ESOP’s. Coming into the 14 September 2013 election, the Coalition fl agged an overhaul of taxation policy on ‘ESOP’s’, particularly for ‘start up companies’, noting that the July 2009 amendments introduced by the Labour government may be dismantled. The Coalition’s review paper on ESOP’s is due for release in December 2013. Quite possibly, taxation changes may once again, make ESOP’s attractive to both employers and employees.


The primary purpose of this publication was to focus on the ASIC changes to its current administration of compliance relief for ESOP’s. The taxation impact on ESOP’s is something that needs to be simplifi ed and made attractive to employers and employees. The fact that ASIC is close to implementing its new policy for offering ESOP’s can be interpreted as anticipating a greater use of ESOP’s in 2014 when the Federal Government is likely to change the complex (and self defeating) means of taxing benefi ts from ESOP’s. Carter Newell will monitor these developments and provide updates as they arise.