Are you ready for the new Employee Share Scheme rules?

Ready for the new Employee Share Scheme rules?

Andy Hutt and Ben Travers summarise how the new employee share scheme rules may affect business, once the Bill gets Royal Assent.


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On 25 June, the new employee share scheme (ESS) rules were passed by the Senate. This means the new rules will apply to grants of shares, rights and options made on or after 1 July 2015 once the Bill gets Royal Assent.

Now is the time to understand the impact for your business.

Changes in summary

  • The taxing point of rights to acquire shares, including options, shifts from vest to exercise.
  • New opportunity defer tax on rights without having a risk of forfeiture.
  • Refund opportunities increased.
  • Introduces new concessions for start-ups in limited circumstances.
  • Cessation of employment remains as a taxing point.

Overall, the changes realign Australia’s tax treatment of ESS, in particular share options, with international practice.

Snapshot for your business

The current tax rules limit the effectiveness of granting share options as a reward mechanism. Since the current rules tax share options when they vest, employees can be liable for tax on options that are never exercised. As a result, companies have generally moved away from granting options under employee share schemes. 

The new rule to tax options at the date of exercise (rather than vest), means the taxing point will coincide with the economic benefit received at exercise. 

Companies should now consider whether share options may, once again, be the appropriate mechanism to motivate, retain and align the employees’ interests with shareholders’ interests. Companies will also need to review their plan rules to ensure they account for the changes in law. 

Our team can assist you to identify all aspects of the new rules that can benefit the company and its employees. Please contact us to discuss further.

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