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:
- The issuer must be a start-up company.
- This means that the startup must not be listed on any stock exchange.
- All companies in the corporate group must have been incorporated for less than 10 years.
- The aggregated annual turnover must not exceed $50 million.
- The employer must be an Australian resident company.
- 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.
How do you value your company when your company is not listed? There are approved market valuation methods for an unlisted company.
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.