Employee Share Schemes Simplified
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By: HHG Legal Group
West Perth, Australia
The Federal Government has recently released proposed changes to the tax treatment of Employee Share Schemes (“ESS”) to make it easier for companies to set up an ESS. While some of the changes are aimed to assist start-up companies, other changes apply to all companies and will have a broader impact on how employers use an ESS as an incentive.
What is an Employee Share Scheme?
An ESS is a scheme where shares or rights in a company are provided to an employee in relation to their employment. Put simply, an ESS gives employees a financial share of the company’s potential success and therefore, provides a financial incentive for employees in the development and success of a company.
Often companies will encourage employees to participate in an ESS by offering shares, stapled securities or rights to acquire shares (including options) in the company (“ESS interests”) to the employee at a discounted price. This is where the tax rules kick in. Where an employee acquires an ESS interest at a discount under an ESS, that discount will be taxed.
Key changes specific to start-up companies
The below tax concessions will apply to certain start-up companies. To be eligible, the company must be unlisted, have an aggregate turnover of $50 million or less, and be incorporated for less than 10 years.
Other key changes
These changes are intended to apply from 1 July 2015, but the legislation may be altered after the Government’s consultation with industry and its passage through the Senate. In the meantime, HHG Legal Group will provide rolling updates of important developments and will be pleased to advise you about setting up an ESS.
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