Securities based employee incentive schemes will again become a more effective tool to attract and retain staff, given the Federal Government’s recently announced changes to the rules governing employees share schemes. The major impediment with the current rules, particularly the imposition of tax upfront on the issue of options, will be abolished. Broadly speaking:
- The Government will reverse the changes made in 2009 to tax for options on grant, so that options will generally be taxed once they have been exercised;
- Eligible startups will be able to offer discounted shares and options to employees at a small discount, with the discount exempt from upfront tax (so long as they are held by the employee for at least 3 years); and
- Eligibility criteria are being developed for companies to be able take advantage of these concessions. The criteria will include a company having an aggregate turnover of not more than $50 million, being unlisted and being incorporated for less than 10 years.
Legislation is proposed to come into effect on 1 July 2015. We will keep you updated as the changes take shape