New Employee Share Scheme Tax Rules legislated with effect from 1 July 2015
05/07/2015
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As expected, the government’s amendments to the rules for the taxation of benefits received under employee share schemes were finally passed by federal Parliament on 25 June 2015. The main changes introduced by the Tax and Superannuation Laws Amendment (Employee Share Schemes) Bill 2015 are, in very general terms –

  • to make the taxing point for rights and options that qualify for tax deferral the time when the rights and options are exercised (since June 2009, the deferred taxing point has been the time the rights and options became exercisable (‘vested’)); and
  • to introduce special tax concessions for employee share schemes in eligible start-up companies.

Details of the new employee share scheme tax rules are available in our previous article HERE.

The Senate Economics Legislation Committee, which was asked to inquire into and report on the Bill, concluded that the changes made by the Bill “…represent a significant improvement in the taxation treatment of ESSs, and [was] satisfied the new arrangements will be highly competitive by international standards.” The Committee recommended that the Senate pass the Bill.

In response to more submissions on this subject, the Committee commented that the present system of taxing employee share scheme interests on cessation of employment “…seems to be an anomaly internationally, and might provide an opportunity for further reform.”

There is some hope this issue will be addressed at some time in the future!

In the meantime, companies are tackling the issue with the use of indeterminate rights that provide for cash or share settlement, instead of share rights. These would permit tax to be deferred until vesting if vesting is post employment.

The text of the Bill, which was passed as introduced, and the Explanatory Memorandum are available HERE.

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