Reading time: 2 minutes

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

Construction Contract Essentials

Thursday 12 August | 11:00 - 11:45am

Online
Understand how construction contracts are drafted and how to protect your construction business.
Register Now

Startup 101: Understanding Cap Tables and ESOPs

Thursday 19 August | 11:00 - 11:45am

Online
Cap tables and employee share option plans are essential for fast-growing startups. Learn more with this free webinar.
Register Now

Expanding to NZ: Structuring Your Business For Success

Thursday 26 August | 2:00 - 2:45pm

Online
Launching a business in New Zealand? Understand how to structure your business for success with this free webinar.
Register Now

Preventing Modern Slavery: Your Business’ Legal Obligations

Thursday 9 September | 11:00 - 11:45am

Online
Are you an Australian business with $100m+ annual consolidated revenue? Learn how to determine if you are a modern slavery reporting entity and your obligations under the legislation with this free webinar.
Register Now

About LegalVision: LegalVision is a tech-driven, full-service commercial law firm that uses technology to deliver a faster, better quality and more cost-effective client experience.

The majority of our clients are LVConnect members. By becoming a member, you can stay ahead of legal issues while staying on top of costs. From just $119 per week, get all your contracts sorted, trade marks registered and questions answered by experienced business lawyers.

Learn more about LVConnect

Need Legal Help? Get a Free Fixed-Fee Quote

If you would like to receive a free fixed-fee quote or get in touch with our team, fill out the form below.

  • 2020 Excellence in Technology & Innovation – Finalist – Australasian Law Awards 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice – Winner – Australasian Lawyer 2020 Employer of Choice Winner – Australasian Lawyer
  • 2021 Fastest Growing Law Firm - Financial Times APAC 500 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review 2020 AFR Fast 100 List - Australian Financial Review
  • 2021 Law Firm of the Year - Australasian Law Awards 2021 Law Firm of the Year - Australasian Law Awards
  • Most Innovative Law Firm - 2019 Australasian Lawyer 2019 Most Innovative Firm - Australasian Lawyer