In publications released in December 2013 and April 20151, Carter Newell alerted readers to:

  1. Australian Securities and Investments Commission (ASIC) plans for relaxed offer disclosure applicable to employee share and option plans (ESOP’s) under modifications planned to Class Order 03/184; and
  2. New tax laws designed to make participation in ESOP’s more attractive for employees from 1 July 2015.

Latest developments

Since December 2013, ASIC has formalised its proposed relief from the fundraising provisions of the Corporations Act 2001 (Cth) for the offer of ESOP securities by the issue of two facilitating ASIC Class Orders i.e.:

  1. ASIC CO 14/1000 for listed bodies (or associated companies) which issue securities under an ESOP; and
  2. ASIC CO 14/1001 for unlisted bodies (or their wholly owned subsidiaries) which issue securities under an ESOP.

The securities can be shares, options, rights or units and an eligible ESOP participant can include, full, part time or casual employees, directors, contractors and prospective eligible ESOP participants.

The rationale for the class order relief is explained in ASIC Regulatory Guide 49 and the relief covers ‘mischief’ incidental to the fundraising provisions in the form of licensing, advertising, hawking, managed investment scheme and on selling provisions.

Class Orders require the employer/offeror to give an employee an offer document and to give ASIC a written notice that its offer was made in reliance on the relevant Class Order. ASIC can request a copy of the offer document. The content of the offer document is prescribed in each Class Order. The disclosure requirements are not seen as being too onerous, nor are the conditions of each Class Order onerous.

On the taxation side, the Australian Tax Office (ATO) has endorsed use of an electronic valuation tool to help employers calculate the market value of unlisted rights and the discount which applies when participants are issued with rights under an ESOP.  Also, it has been announced that ‘the ATO will also work with industry and the Australian Securities and Investments Commission to develop standardised documentation that will streamline the process of establishing and maintaining an [employee share scheme].  The standard documentation will be issued under the Commissioner’s general powers of administration’.2

Why the wake up call?

It has now become very attractive to establish an ESOP.  The benefits of an ESOP usually translate to employees understanding they are part owners of the business they work for.  The rules for taxation of an ESOP participant who hold employee securities are much simpler then they were previously (refer April 2015 publication).

In perspective, there are administrative and compliance costs involved and these costs would need to be weighed up by each employer, in conjunction with advice from their accountant before making the bold leap into establishing an ESOP.  However, the economic benefits of having an operational ESOP in place appear to us to outweigh the disadvantages.