We reported in October that ASIC was in course of consulting on its proposal to address several concerns with the new disclosure and other relief provisions for employee share schemes (ESS) in Division 1A of Part 7.12 of the Corporations Act 2001 – see HERE

Consultation Paper CP364 was released by ASIC on 29 September seeking submissions on proposed legislative relief to:

• expand the secondary sale exemption for financial products that are quoted on a financial market
• enable unlisted foreign companies to provide financial information prepared in accordance with foreign accounting standards
• allow companies to provide a valuation prepared by an independent expert where they are offering ESS interests that are not covered by a method approved by the Income Tax Assessment Act 1997 (ITAA 1997); and
• ensure salary sacrifice arrangements can comply with contribution plan requirements.

Submissions on the proposals were due for lodgement with ASIC by 31 October .

Generally, we agree with ASIC’s proposed modification to expand the secondary sale exemption for quoted products.

However, we did not agree with ASIC’s proposal to not expand s1100ZD for unquoted financial products on the basis that to do so would change the settings determined by Parliament. This seems to be at odds with ASIC’s longstanding relief provided through ASIC Class Order 14/1001.

It is relevant that it was the intention of parliament to enable the wider and easier adoption of employee share schemes for both listed and unlisted companies. Limiting the subsequent sale exemption will be a further barrier for unlisted companies to attract talented employees. The unlisted and private companies are a larger proportion of the economy than listed companies, and employ more people. Further, relief would enable a greater proportion of employees to become owners of the businesses that employ them, and provide an easier means of current owners to transfer ownership of their firms as they transition to retirement.

Other key elements of our submissions were;

• Division 1A currently provides several alternative valuations that reference securities and financial products on offer at the same time. We suggested that these alternatives will be limited in their application as the more likely case will be securities that have been offered in the last twelve months or are about to be offered such as in a capital raising.
• Extending the timing to the past twelve months and next three months will be a reliable indication of value as it will be accompanied by current financial information.
• Some technical amendments to refine the meaning of salary sacrifice

Guerdon Associates made its submission in respect of the questions raised by ASIC – see HERE

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