Posted by: Angelo Venardos | Date: 23 October 2014
Recently the Australian Government released a policy statement entitled ‘Industry Innovation and Competitive Agenda.’ The Agenda includes a proposal to reverse the previous Labour Government’s changes to the way in which employee share schemes (ESS) are taxed. The changes will be welcomed by businesses in particular start up companies.
In 2009, changes were made to how ESS are taxed. Currently, securities purchased under an ESS are taxed up-front to the extent employees receive a discount relative to the market value of the securities.
Shares provided under an ESS are currently taxed up-front (when provided to the employee) unless there is a risk that the employee will forfeit the shares, in which case taxation is deferred until the shares ‘vest.’
Options provided under an ESS are generally taxed when they ‘vest’, rather than when the employee decides to exercise the options to purchase shares in the company, as was previously the case. The tax treatment of options is particularly problematic because it taxes employees before they have the opportunity to convert their options to shares and realise any actual gain by selling the underlying shares.
It is expected that the Government will consult with the industry before legislation is introduced on 1 July 2015.
Please contact me should you have any questions on Employee share schemes.