No Match Found
4 August 2021
The Federal Government has released for consultation draft legislation that will implement previously announced reforms to regulatory and tax arrangements for employee share schemes (ESS). These reforms should make it easier for businesses to offer ESS and will support Australian businesses to attract and retain the talent they need to compete on the global stage.
ESS provide an opportunity for employees to share in the productivity and growth of businesses - aligning employee and shareholder interests. In light of the current skills shortage, where the need to attract, retain and incentivise employees is critical for business (especially for small business and start-ups), the Government’s focus on ESS is a positive move.
The exposure draft legislation covers the removal of cessation of employment as a taxing point and reforms to simplify the disclosure and licensing requirements which was announced in the 2021-22 Federal Budget. These issues are discussed in further detail below.
Tax will no longer be payable on tax-deferred ESS when an employee leaves the business. The removal of termination of employment as a taxing point means:
By removing the cessation of employment taxing point, the measure will result in tax being deferred until the earliest of the remaining taxing points:
This change will apply to ESS interests granted on or after 1 July following Royal Assent of the amending legislation. This means that the earliest time that these measures can take effect is from 1 July 2022.
The draft reforms proposed by the Government to simplify disclosure and licensing requirements are significant and welcomed changes for implementing and administering employee incentive schemes in Australia, particularly for unlisted companies.
The key regulatory changes proposed in the exposure draft include:
In addition, ASIC has been given express enforcement powers to assist with ESS regulation (including the ability to issue ‘stop orders’). There are also provisions which seek to protect ESS participants from certain misleading or deceptive statements and certain loss or damage (including the ability to impose civil and criminal penalties).
The regulatory changes are proposed to apply three months after the amending legislation receives Royal Assent.
Meaningful reform to facilitate the growth of ESS in Australia is crucial. The proposed changes will go a long way to creating a significant and positive impact on companies being able to implement ESS within Australia. Yet there are still many ESS which will not be eligible to access the new reforms, or which the time and costs involved to access the new reforms will outweigh the incentive effect for participants.
Comments can be made on the draft materials by 25 August 2021. PwC will be preparing a written submission to the Treasury on the exposure draft legislation. We welcome responses and thoughts on the proposed changes from our clients and professionals. Following our submission, we will release a more detailed analysis of the proposed changes and our submission.
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