Cessation of employment no longer a taxing point for ESS

The 285-page Corporate Collective Investment Vehicle Framework and Other Measures Bill 2021 included 2 pages on employee share schemes (ESS).

Changes to the ESS provisions were announced in the 2021 Budget so that cessation of employment would no longer trigger a taxing point for unvested equity grant settled in shares.  Until now, terminating employees who continued to hold unvested ESS interests had to pay tax on the market value at the cessation date. This resulted in an unfunded tax liability.

The Bill introducing this change passed through both houses of Parliament on 10 February 2022 and has now received Royal Assent.

A welcome change to the original proposal is that the new law will now apply to all ESS interests where the deferred taxing point occurs on or after 1 July 2022. This includes grants made prior to the change in the law. The original proposal was that the new law would only apply to new ESS interests granted on and from 1 July 2022.

This is a sensible retrospective change.

Employers that provided general tax information to employees when their ESS interests were granted may want to consider updating and communicating this change to employee participants.

If you would like to access the legislation it can be found HERE – go to Bill first reading.

The explanatory memorandum will be more helpful though and can be found HERE – go to explanatory memorandum.

© Guerdon Associates 2024
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