On 14 October
2014 the Government announced proposed changes to the ESS taxing
provisions that will come into effect on 1 July 2015. The proposed
changes fall into two broad categories being those that apply to:
• start-up companies which will be unlisted companies that have been incorporated for less than 10 years and have turnover of not more than $50 million, and
• other companies including ASX listed companies.
The start-up concession will apply to options and allow tax deferral for up to 15 years (currently 7 years) and will tax any benefits as capital gains when the shares are sold. Similar provisions may apply to offers of shares.
For other companies the ESS provisions will enable ESSs to be classified as either up front taxed or tax deferred depending upon the rules of the plan. If tax deferral applies then options may be taxed at the time of exercise (currently when any real risk of forfeiture and dealing restrictions cease to apply) and the benefit taxed will be the excess of the market value of a share over the exercise price and any other amounts paid in relation to the option. This change seems likely to overcome the current problems where an option holder may be taxed before exercise on a value that cannot be realised because the exercise price in not less than the market value of a share. This change may re-open the door for options to be used for long term incentive purposes.
The current regulations that may be used to value unlisted shares and rights are also to be updated.
You can read more from the official release here:
http://www.dpmc.gov.au/publications/Industry_Innovation_and_Competitiveness_Agenda/employee_share_schemes.cfm
• start-up companies which will be unlisted companies that have been incorporated for less than 10 years and have turnover of not more than $50 million, and
• other companies including ASX listed companies.
The start-up concession will apply to options and allow tax deferral for up to 15 years (currently 7 years) and will tax any benefits as capital gains when the shares are sold. Similar provisions may apply to offers of shares.
For other companies the ESS provisions will enable ESSs to be classified as either up front taxed or tax deferred depending upon the rules of the plan. If tax deferral applies then options may be taxed at the time of exercise (currently when any real risk of forfeiture and dealing restrictions cease to apply) and the benefit taxed will be the excess of the market value of a share over the exercise price and any other amounts paid in relation to the option. This change seems likely to overcome the current problems where an option holder may be taxed before exercise on a value that cannot be realised because the exercise price in not less than the market value of a share. This change may re-open the door for options to be used for long term incentive purposes.
The current regulations that may be used to value unlisted shares and rights are also to be updated.
You can read more from the official release here:
http://www.dpmc.gov.au/publications/Industry_Innovation_and_Competitiveness_Agenda/employee_share_schemes.cfm
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