On 25 March a bill amending the taxation of employee share schemes was tabled before Parliament, and provide for welcome improvements to the Exposure Draft legislation released in January (refer to our Tax Brief issued at that time here http://ecomms.gtlaw.com.au/rv/ff001cc1e6b6eeeb007dd33c5849929cc4317e38).
The more significant changes since the exposure draft 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 $50m aggregated turnover test for start-up eligibility. This is welcome news, as this issue was first identified by the Tax team at Gilbert + Tobin, who contributed to a submission to Treasury identifying and providing potential solutions for the issue;
- participating employees may be eligible for the 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 sale will be subject to CGT, with the potential application of the CGT discount); and
- 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.
The Bill confirms that the changes will apply to grants of shares and options on and after 1 July 2015.