Reading time: 3 minutes

In March 2022, the government announced reforms to make it easier for businesses to utilise employee share schemes (‘ESS’) and reduce the red tape so that employees at all levels can directly share in the business growth they help to generate. These changes include:

  • amending the disclosure rules, allowing unlisted companies to offer an unlimited number of shares, of an unlimited value, as long as the employee is not charged more than $30,000 a year for them (up from a $5,000 a year cap). Employees will also be able to accrue up to $150,000 over a five year period; and
  • for employee share schemes where there is no payment to participate, independent contractors will receive the same treatment and receive the same regulatory relief as employees and directors who are participants in the scheme.

Good news, startups! The tax treatment of employee share schemes (ESSs) changed from 1 July 2015. One key change is that you should definitely beware of, is that for eligible companies implementing ESSs, the options are not taxed when they are issued (which is a certainly a step in the right direction)!

In the past, the recipient was taxed as soon as they received the options. This was a problem, as the recipient was potentially taxed when they received a contract to be able to buy shares in the future, rather than when they received the actual shares which could be sold.

Under the new startup concessions, the recipient is not taxed until a future event, including when the options are exercised and the recipient receives shares. A tax refund is possible if the employee is issued with options but does not exercise them, or allows them to be cancelled so that the employee does not actually receive shares.

Eligibility criteria for start-up concessions

In addition to the general conditions that apply to the concessional schemes, the following specific criteria apply to the start-up concession:

  1. The issuer must be a start-up company.
  2. This means that the startup must not be listed on any stock exchange.
  3. All companies in the corporate group must have been incorporated for less than 10 years.
  4. The aggregated annual turnover must not exceed $50 million.
  5. The employer must be an Australian resident company.
  6. ESS interests price and discount.

Each share must be provided at a discount no greater than 15% of the market value.

The right must have an exercise price (also known as strike price) that is greater than or equal to the market value of an ordinary share in the issuing company.

Hold for 3 years

Employees must hold their ESS Interests for at least three years.

Valuation?

How do you value your company when your company is not listed? There are approved market valuation methods for an unlisted company.

Conclusion

LegalVision can assist you to establish an Employee Share Scheme. LegalVision has a team of great lawyers with employee share scheme experience. Please call our office on 1300 544 755 and our Client Care team will happily provide you with an obligation-free consultation and a fixed-fee quote.

Webinars

Redundancies and Restructuring: Understanding Your Employer Obligations

Thursday 7 July | 11:00 - 11:45am

Online
If you plan on making a role redundant, it is crucial that you understand your employer obligations. Our free webinar will explain.
Register Now

How to Sponsor Foreign Workers For Your Tech Business

Wednesday 13 July | 11:00 - 11:45am

Online
Need web3 talent for your tech business? Consider sponsoring workers from overseas. Join our free webinar to learn more.
Register Now

Advertising 101: Social Media, Influencers and the Law

Thursday 21 July | 11:00 - 11:45am

Online
Learn how to promote your business on social media without breaking the law. Register for our free webinar today.
Register Now

Structuring for Certainty in Uncertain Times

Tuesday 26 July | 12:00 - 12:45pm

Online
Learn how to structure to weather storm and ensure you can take advantage of the “green shoots” opportunities arising on the other side of a recession.
Register Now

Playing for the Prize: How to Run Trade Promotions

Thursday 28 July | 11:00 - 11:45am

Online
Running a promotion with a prize? Your business has specific trade promotion obligations. Join our free webinar to learn more.
Register Now

Web3 Essentials: Understanding SAFT Agreements

Tuesday 2 August | 11:00 - 11:45am

Online
Learn how SAFT Agreements can help your Web3 business when raising capital. Register today for our free webinar.
Register Now

Understanding Your Annual Franchise Update Obligations

Wednesday 3 August | 11:00 - 11:45am

Online
Franchisors must meet annual reporting obligations each October. Understand your legal requirements by registering for our free webinar today.
Register Now

Legal Essentials for Product Manufacturers

Thursday 11 August | 11:00 - 11:45am

Online
As a product manufacturer, do you know your legal obligations if there is a product recall? Join our free webinar to learn more.
Register Now

About LegalVision: LegalVision is a commercial law firm that provides businesses with affordable and ongoing legal assistance through our industry-first membership.

By becoming a member, you'll have an experienced legal team ready to answer your questions, draft and review your contracts, and resolve your disputes. All the legal assistance your business needs, for a low monthly fee.

Learn more about our membership

Need Legal Help? Submit an Enquiry

If you would like to get in touch with our team and learn more about how our membership can help your business, fill out the form below.

Our Awards

  • 2020 Innovation Award 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice Award 2020 Employer of Choice Winner – Australasian Lawyer
  • 2020 Financial Times Award 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review
  • 2021 Law Firm of the Year Award 2021 Law Firm of the Year - Australasian Law Awards
  • 2022 Law Firm of the Year Winner 2022 Law Firm of the Year - Australasian Law Awards