Australian government drafts the implementation for tax and regulatory changes to employee share schemes

The Australian government released an employee share scheme (ESS) exposure draft legislation that serves to implements the 2021-22 budget measure (see Guerdon Associates take of the ESS taxation changes from the budget HERE and regulatory reforms previously consulted on April 2019 (see Guerdon Associates summary and take on the consultation paper HERE.

The tax reforms draft removes the cessation of employment as a taxing point for the tax deferred ESS. Under the new legislation draft, tax will be deferred until the earliest of:

  • In the case of shares, when there is no risk of forfeiture and no restrictions on disposal;
  • In the case of options, when the employee exercises the option and there is no risk of forfeiting the resulting share and no restriction on disposal; and
  • The maximum period of deferral of 15 years.

In addition, the removal of certain regulatory barriers will be easier for cash-poor businesses to competitively attract employees with ESS offers. Regulatory changes include:

  • Removing the Corporations Act 2001 requirements for ESS offers to employees who do not pay or incur debt to participate in these schemes;
  • Increasing the value cap, under which Corporations Act 2001 requirements do not apply, to $30,000 for all other ESS offers of unlisted companies;
  • Consolidating exemptions and class order relief from disclosure, licensing, hawking, advertising and other obligations under the Corporations Act 2001;
  • Expanding relief for unlisted companies to include contribution plans and limited or no recourse loans, where an employee can make monetary contribution to acquire eligible financial products;
  • Relaxation of the requirements to lodge disclosure requirements.

The ESS regulatory reforms targets small and unlisted companies. The goal of the changes is ultimately to reduce the time and monetary cost to companies of implementing ESS.

Feedback can be provided preferably by email with a post option available. Details of the exposure draft legislation and feedback can be found HERE.

© Guerdon Associates 2024
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