Budget 2021 – Changes to Employee Share Scheme Legislation

14 May 2021

As part of the Federal Budget released on 11 May 2021, the Morrison Government has outlined several changes to employee share scheme (ESS) legislation in an effort to attract and retain global talent in Australia.

The changes address items which have traditionally hampered the implementation of ESSs by companies and the participation in ESSs by employees. The changes provide relief to organisations, particularly start-ups, by removing some of the “red-tape” involved with the implementation and maintenance of an ESS by a company. The changes additionally provide relief to ESS participants by removing “cessation of employment” taxing point. The changes will apply to grants made on or after 1 July 2021 following Royal Assent and will not apply retrospectively.

This insight will focus on 2 areas of the budget related to ESSs:

  • The removal of cessation of employment as a deferred taxing point for all companies; and
  • The removal of certain reporting and compliance requirements.

Removal of Cessation of Employment as a Deferred Taxing Point

The removal of the cessation of employment taxing point will bring Australian employee share schemes into alignment with those in most developed nations. The changes will also remove the administrative challenges that can arise when ex-employees seek a tax return amendment when equity retained at cessation of employment lapses in a later financial year.

With the removal of the cessation of employment taxing point, deferred taxing points will occur:

  • In the case of Shares, when there is no risk of forfeiture and there are no disposal restrictions;
  • For Rights/Options, when the Rights/Options are exercised and there is no risk of forfeiture and there are no disposal restrictions; or
  • 15 years from the date that the Shares, Options or Rights were granted.

The Removal of Certain Reporting and Compliance Requirements

Continuous disclosure requirements can be a deterrent to the implementation of employee share schemes for emerging companies.

For employers who do not charge or lend to employees to whom they offer an ESS, the Morrison Government has stated that there will be a reduction in red-tape by removing regulatory disclosure requirements and exempting ESS offers from licensing, anti-hawking and advertising prohibitions. Unlisted companies will also be able to make equity offers of up to $30,000 per employee per year. This amount is currently $5,000 per employee, per year.

The desired outcomes from these changes are to create an environment where more companies, particularly start-ups, can offer and embrace a culture of employee ownership, leading to a more productive and prosperous economy.

Implications for Companies

If an organisation is already offering an ESS, now is the time to carefully consider the changes that the proposed legislation will have on upcoming grants in terms plan design and rules, explanatory booklets and participant guides, Offer letters and tax guides.

If your organisation has been considering the implementation of an ESS, now might be the perfect time to get to the drawing board with a view to launching your new ESS in the new financial year, taking advantage of the slated changes.

BoardRoom’s Employee Equity Plan team has extensive experience in managing all aspects of employee share plans, from design phase through to implementation and administration. Contact us now to find out how we can help you.

Contact BoardRoom for more information:

Keshwan Nair

Head of Unlisted Fund Services

+61 2 9290 9666