If you have Employee Share Schemes or ESOPs in play or on the horizon, read on for the potential changes in treatment by the ATO.
Employee share schemes provide an opportunity for employers to offer employees a stake in the growth of the company by issuing interests such as shares, rights (including options) or other financial products to their employees, usually at a discount.
In the 2021-22 Federal Budget, the Government flagged its intention to simplify employee share schemes and make them more attractive by removing the cessation of employment taxing point for tax-deferred Employee Share Schemes (ESS). Currently, when an employee receives shares or options that are subject to deferred taxation the taxing point is triggered when they cease employment with the company, even if they could still lose the shares or options in future or have not yet exercised the options they have received.
This will mean that under a tax-deferred ESS, where certain criteria are met, employees may continue to defer the taxing point even if they are no longer employed by the company. In broad terms, following this change the deferred taxing point will be the earliest of:
- in the case of shares, when there is no risk of forfeiture and no restrictions on disposal
- in the case of options, when the employee exercises the option and there is no risk of forfeiting the resulting shares and no restriction on disposal
- the maximum period of deferral of 15 years.
Regulatory changes will also be made to reduce red tape where employers do not charge or lend to the employees to whom they offer ESS. Where employers do charge or lend, streamlining requirements will apply for unlisted companies making ESS offers that are valued at up to $30,000 per employee per year.
The detail of the ESS simplification has not been released.