Good news for Employee Share Schemes, improved legislation before Parliament

On Wednesday 25 March 2015 the Minister for Small Business, the Hon. Bruce Billson MP, introduced into Parliament the Tax and Superannuation Laws Amendment (Employee Share Schemes) Bill 2015.

The legislation broadly follows the original Exposure Draft that was released in January this year, however we are very pleased to note there is one key enhancement for Start-up companies that was the primary substance to Moore Stephens' Treasury Submission in February this year. Click here to read the full submission.

As previously reported, the original Exposure Draft introduced a number of enhancements to the taxation of Employee Share Plans, including:

  • The ability for all companies to have the deferred taxing point on Share Options extended from the date of "vesting" to the date of "exercise";
  • An extension of the maximum deferral period from 7 years to 15 years;
  • The introduction of start-up concessions whereby, subject to specific requirements, Share and Option Plans could be carved out of the Employee Share Scheme provisions; and
  • Including improvements to the overlay of the Division 7A loan rules to open up more opportunity for the provision of company loan funded equity arrangements.

However, in our view, the Exposure Draft contained a major flaw. Companies that qualified as "Start-up" companies that placed performance conditions on a Share Option Scheme found themselves disqualified from being able to access the new concessions. Given that most Employee Share Plans have some form of performance condition, it meant that the concessions would have limited application in practice, and we viewed this as a significant issue.

Under the legislation presented into Parliament yesterday, the application of performance conditions to a Share Option Scheme that otherwise satisfies the Start-up concessions, is no longer precluded from applying the concessions. We applaud this amendment and see it having a big impact on the level of participation in Employee Share Plans by Start-up companies.

It is our expectation that the Bills will be passed as drafted, and this announcement therefore provides a much clearer outlook for companies considering an Employee Share Plan. If this is you, we would encourage you to contact the author or your local Moore Stephens advisor.

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