Employee Share Schemes – Another Report Supports Further Reform
Although Employee Share Schemes (ESSs) are appealing on the surface, they are undermined by complex legislation and confusion regarding upfront or deferred taxation.
The complexities and confusion have (again) supported proposed reforms, this time by the House of Representatives Standing Committee on Tax and Revenue, in a recent report. (Report)
While the Federal Government’s 2021 budget included the removal of cessation of employment as a “deferred taxing point” (discussed here), this Report provides further recommendations. If these recommendations are legislated, it would greatly assist to simplify the taxation of ESSs and in theory encourage increased adoption of ESS interests in the future.
The recommendations in the Report, which are advocated primarily by submissions made by numerous professional bodies, include:
Taxing ESS interests exclusively under capital account, rather than the current discount component being taxed on revenue account, either on an upfront or deferred basis;
The definition of a ‘start-up’ being amended to include listed companies that would otherwise satisfy the criteria to be a ‘start-up’;
Extending the ‘safe harbour’ valuation methodology contained in Legislative Instrument – Income Tax Assessment (ESS 2015/1) to all unlisted companies;
Removing the requirement for a maximum 15 per cent discount under the start-up regime;
Removing the “real risk of forfeiture” requirement and the “75 per cent offer” requirement for shares.
The release of the Report suggests that addition much-needed reform on the taxation of ESS interests may be on its way.
For more information, please contact:
Paul Gray
Principal
T: 03 5225 5231
M: 0414 195 886
E: pgray@ha.legal
Rob Warnock
Principal Lawyer
T: 03 5226 8541
M: 0419 892 115
E: rwarnock@ha.legal
