The Government has released the Exposure Draft for the proposed changes to the taxation of employee share and option plans (ESOPs). The Exposure Draft generally follows the Government’s announcement on 14 October 2014 (see our Tax Brief), but also includes some changes not previously announced. The Exposure Draft includes some changes to all ESOPs as well as introducing a concessionary regime for ‘start-up companies’. The changes will apply to grants of shares and options from 1 July 2015.
In relation to the changes that will apply to ESOPs generally:
- options will no longer be required to be subject to a ‘real risk of forfeiture’ at grant; and
- an employee may hold up to 10% of the ownership interests in the employer, up from the 5% maximum currently.
In relation to start-ups, the new concessions provide an exemption from tax for a discount of up to 15% on grant of shares and that any gain on options will be taxed as a capital gain rather than as income. To qualify as a start-up the company must:
Broadly, the group will include any ‘body corporate’ that owns more than 50% of the shares in the ‘start-up’ and any of that shareholder’s majority owned entities. Consequently, if a start-up has a VCLP or ESVCLP as a majority investor, then the age and turnover of the VCLP/ESVCLP and all of its majority owned investments will be taken into account in determining whether the start-up company meets these requirements.
For the shares or options to qualify for this concession:
There are several other welcome changes, including allowing the Commissioner to provide valuation safe harbours and improving the refund provisions for lapsed options.
Submissions close on Friday, 6 February. For further information please contact Toby Eggleston, Tel: +61 3 9288 1454, Email: Toby.Eggleston@greenwoods.com.au.
Freehills Patent Attorneys is associated with Herbert Smith Freehills Pty Ltd. This article was first published on the Greenwoods and Herbert Smith Freehills website.