The federal budget has revealed more details about the $500 million tax incentive for employees who are shareholders, which is designed to make employee share schemes (ESS) more attractive to both tech companies and the talent they’re striving to attract.
The change means employees will not be taxed on their shares as soon as usual after receiving them, even after they leave the business.
Currently, shares are taxed at one of several points in time, depending which comes first.
These points are:
- When the employee leaves a company;
- When there is no risk of forfeiture or restrictions on disposal of shares;
- When an employee exercises an option and there is no risk of disposal; or
- After a maximum of 15 years.
The change in the budget removes automatic taxation of ESS holdings when an employee leaves a company, meaning employees will be taxed when they reach the next point.
Assuming the legislation is passed, this will apply to all ESS holdings issued on or after July 1.
The government has also promised to ‘reduce red tape’ for businesses offering ESS, by removing regulatory requirements for those who do not charge for or lend shares.
The change will remove disclosure requirements, and exempt the offers from licensing, anti-hawking and advertising prohibitions.
For those that do not charge for or lend shares, these exemptions will still apply, and disclosure requirements will be ‘streamlined’.
Unlisted companies that do not charge for or lend shares will also be able to offer up to $30,000 in shares per employee, per year — up from $5,000.
These changes are expected to come into effect three months after the legislation passes.
The budget papers suggest the change is in line with recommendations from the Global Business and Talent Acquisition Taskforce.
It is designed to help Aussie companies attract and retain “the talent they need to compete on a global stage,” it says.
The reform follows measures proposed back in 2018 to increase the top limit to $10,000.
At the time, a joint release from Treasurer Josh Frydenberg and then Minister for Small and Family Business Michaelia Cash called the regulatory framework around ESSs “too complex and fragmented”, saying it discourages businesses from running them.
Such schemes can help early-stage startups attract high-quality tech talent, even when they can’t offer market-standard wages.
It also means those employees are invested — financially as well as emotionally — in the success of the business.
The budget papers suggests the reforms will make it easier for businesses to offer such schemes, “giving more Australians a share in the economic value they create”.