11.11 2014

EMPLOYEE INCENTIVE SCHEMES IN THE SPOTLIGHT: TAX CHANGES & ASIC RELEASES REVISED GUIDANCE

The Tax Changes

On 14 October 2014, the Australian Government released its ‘Industry Innovation and Competitiveness Agenda’ as a central part of its strategy to strengthen Australia’s economy and competitiveness. One of the main initiatives involves changes to the taxation of employee incentive schemes (EIS) which is aimed at levelling the playing field for start-ups trying to compete on the global stage.

The changes, expected to come into effect from 1 July 2015, reverse the previous rules which required options issued to employees under an EIS to be taxed at the point of issue. Under the new rules, options issued to employees under an EIS will generally be taxed when they are exercised, rather than when they are issued. The Government has also extended the maximum time for tax deferral from seven years from the acquisition of interests to 15 years, which is aimed at allowing more time for start-ups to succeed.

A further concession will be available to eligible start-ups, allowing them to issue their employees options at a small discount¹ and to have taxation deferred until sale, so long as the options are held for at least three years. Eligible start-ups have been defined as those companies:

(a) with a turnover of no more than $50M;

(b) that are unlisted; and

(c) that have been incorporated for less than 10 years.

Other changes in the ‘Industry Innovation and Competitiveness Agenda’ include investment into the vocational education and training sector, reforming the 457 and investor visa programs, and funding Industry Growth Centers in five key sectors (food and agribusiness; mining equipment, technology and services; oil, gas and energy resources; medical technologies and pharmaceuticals; and advanced manufacturing sectors).

ASIC’s Revised Guidance Released

On 31 October 2014, ASIC also released an updated ‘Regulatory Guide 49 Employee Incentive Schemes’ and has issued two new class orders (‘Class Order 14/1000’ and ‘Class Order 14/1001’), which replace the existing ‘Class Order 03/184’. The changes will better facilitate the ability for companies to offer EIS’s and aims at reducing their compliance burden. Changes include:

(a) expansion of the categories of people who can make, and participate in, offers;

(b) expansion of the classes of financial products which may be offered;

(c) greater flexibility in the way employee incentive schemes can be structured;

(d) reduction in the administrative burden of having to provide copies of documents to ASIC; and

(e) expansion of the types of situations where unlisted bodies may offer employee incentive schemes.

Importantly, for recently listed companies or those planning to IPO, the requirement to be listed for 12 months before adopting an employee incentive scheme has been reduced to 3 months. For further information about ASIC’s revised guidance, please contact us.

Further Information

Should you be considering implementing an EIS or already have one in place and require any further information, please contact us.

 

¹The integrity provisions introduced in 2009 will remain in force, allowing an upfront $1,000 tax concession for employees who earn less than $180,000 per year.


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