Further to our December 2014 Client and Friends Newsletter and as explained in greater detail in our January 2015 client alert, the Australian Government released exposure draft legislation on January 13, 2015 to amend the employee share scheme (“ESS”) rules for ESS interests granted on or after July 1, 2015. Generally, the proposed changes to the ESS rules are aimed at improving the tax treatment of employee shares schemes, making them more accessible and attractive to businesses in order to facilitate the alignment of interests between employers and their employees, and stimulate the growth of innovative start-ups in Australia by helping small unlisted companies become more competitive in the labor market. The most notable change under the proposed legislation is the change to the tax treatment of stock options, which generally will become subject to taxation at the time of exercise like most of the world (rather than at the time of vesting, which typically is the case under the existing ESS rules). In addition, the draft legislation provides for favorable tax treatment for certain start-up companies. The Australian Government concluded its comment period on the proposed legislation on February 6, 2015, and revised legislation is expected to be introduced for debate and final passage (hopefully) later this year. We will provide further information about the proposed changes to the ESS rules as the legislation progresses.