Start up Employee share scheme just got fun….

We have blogged about this before but we now have some draft legislation that will make 1 July 2015 lots of fun for advice to start up companies.

While this draft legislation makes other changes as well**, this will also make remunerating certain employers lots of fun. These Start up companies will be able to do two things:

1. In relation to shares, a discount on shares of 15% or less is exempt from income tax. Also, the shares then subject to the capital gains tax system with a cost base reset at market value.

2. In relation to rights, a discount on “out of the money rights” is not subject to upfront taxation and the right, and resulting share once acquired, is then subject to capital gains tax with a cost base equal to the employee’s cost of acquiring the right.

So what is a Start up company? No company in the group has existed for 10 years, the entities are not listed, the aggregate turnover is less than $50 million and is Australian resident. Yep… that means most of the companies in Australia.

So get ready to advise on this…

**In “normal” ESS deferred schemes not covered by the startup concessions, where income tax is deferred, the taxing point is the earliest of:

For shares

  • when there is no real risk of forfeiture of the shares and any restrictions on the sale are lifted;
  • when the employee ceases employment; or
  • 15 years after the shares were acquired.For rights
  • when there is no risk of forfeiture of the rights and any restrictions on the sale are lifted;
  • when the employee exercises the rights;
  • when the employee ceases employment; or
  • 15 years after the rights were acquired.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: