Employee share plan tax bill introduced into Parliament

On 25 March 2015, the Tax and Superannuation Laws Amendment (Employee Share Schemes) Bill 2015 was introduced into federal Parliament. 



riefly, under the Bill:

·        For all companies, options and rights subject to deferral will be taxed when they are exercised rather than when they vest

·        Options and performance rights no longer need a real risk of forfeiture to access deferred taxation

·        The maximum period for tax deferral is extended from 7 to 15 years

·        Refunds can be obtained of the tax paid on options that are not exercised

·        There are special concessions for “start-ups” that will allow employees to 1) receive fair market value options tax free and then to only pay capital gains tax on the disposal of the share acquired on exercise of the option and 2) acquire shares without having to pay tax on a discount of up to 15% of the market price, with CGT applicable on disposal of the share.


Our initial and more detailed summary of the employee share scheme tax changes, which are scheduled to apply from 1 July 2015, can be seen HERE.


Apart from various technical amendments, noteworthy changes to the Bill from the exposure draft published in January mean that:


·        Recipients of the small start-up concession, as it applies to options, will also be able to benefit from the 50 per cent capital gains tax discount in a wider range of circumstances.

Under the changes, for capital gains tax purposes, the acquisition time for a share that has been acquired by way of exercising a right that was an ESS interest subject to the small start-up concession, will be the time at which the right was acquired, and not the time at which the share was acquired. This will ensure that the capital gains tax discount is available so long as the right and underlying share are sequentially held for 12 months or more.

·        Contributions from certain large venture capital investors will not rule out eligibility for the small start-up concession. The Bill will now exclude eligible venture capital investments from the $50 million aggregated turnover test and grouping rules (when determining eligibility for the start-up concession) where the investment is made by venture capital limited partnerships, early stage venture capital limited partnerships, Australian venture capital funds of funds or tax-exempt deductible gift recipients (such as universities).


The government has not responded to submissions calling for the extension of the start-up concessions to ASX-listed companies. It is disappointing, too, that the government has again failed to respond to calls for the cessation of employment to be removed as a deferred taxing point for unvested equity.  This change would enhance consistency and simplicity, reduce administrative costs and, most importantly, improve governance by encouraging management to ensure their enterprises are sustainable over the longer term.


On balance, however, the tax changes are welcome, if not overdue. They provide much greater scope to align the interests of NEDs, executives and other employees with shareholders.


The first reading text of the bill and the accompanying explanatory memoranda are available HERE.

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