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