Reviving Employer Share Schemes for Start-ups: The Impact of 2009 Government Changes and Tax Advisor Expertise
The changes made to the Employer Share Scheme rules by the previous Government in 2009 brought the utilisation of the scheme to a standstill for start-up companies, necessitating the expertise of a tax advisor to navigate the new regulations.
Fast forward to today, the current Government has recognised the importance of Employee Share Schemes in fostering entrepreneurship and supporting the growth of start-up ventures. In response, they have announced that they will reform the tax treatment of Employee Share Schemes to bolster entrepreneurship and support start-up companies. They will reverse the changes made in 2009 to the taxing point for options.
This announcement will mean discounted options will be taxed when exercised (converted to shares), rather than the existing rules that tax the discount when the employee receives the options.
The proposal will not tax the up-front discount if the Employee Share Scheme options or shares are issued by an eligible company and are held by the employee for at least three years. The discount on options will be deferred until the sale, and the discount on shares (issued at a slight discount) will be exempt from tax.
To be eligible for the concessions, a company is required to:
- have an aggregate turnover of not more than $50 million
- be unlisted
- be incorporated for less than 10 years
Furthermore, the Government will also update the valuation tables companies use to value their options and the integrity provisions introduced in 2009, and the $1,000 up-front tax concessions for employees who earn less than $180,000 p.a. will be retained.
The proposed legislation will commence on 1 July 2015.
If you have any questions in relation to the above, feel free to reach out and contact us.
*Correct as of October 2014
Disclaimer – Kreston Stanley Williamson has produced this article to serve its clients and associates. The information contained in the article is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas in this article, you must seek advice about your circumstances. Liability is limited by a scheme approved under professional standards legislation.