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.
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About Ken Mansell

As a stay at home Dad most of the week this is my way of pretending I am still the tax counsel of ASX and SEC listed companies, working at big 4 firms, working at the Federal Treasury, on the Henry Review and at Parliament House for the previous government.
This entry was posted in Income Tax, Legislation, Planning Idea, Planning Stuff, Tax Policy. Bookmark the permalink.

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