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Tax Treatment of Employee Share Schemes from 1 July 2015

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Australian Government have made some changes in tax treatment of Employee share schemes (ESS) which was applied from 1 July 2015. There are changes to some existing rules as well as some new concessions for employees of start-up companies. The main changes are-

  • Deferred taxing point: All options acquired under an ESS can be taxed later even if these options schemes do not contain a real risk of forfeiture and the maximum deferral point has been increased from 7 to 15 years.
  • Significant ownership test: In new tax treatment of EES the voting rights and ownership rights test have changed. Previously, only the ownership of shares was considered but now the rights to acquire shares are also considered.
  • Tax refund: Under the new rules a refund of tax paid at the taxing point is possible if an employee acquired the rights but later decides not to exercise them.
  • Additional tax concession for start-ups: If an employee meets the eligible criteria of ESS regime he/she will enjoy tax free ESS interests.
  • Assistance for start-up companies: Start-up companies can now value their unlisted shares using some approved market valuation methods.

The above changes took effect on 1 July 2015. For the updated scheme, all ESS concessions must be satisfied and the scheme must require employees to satisfy a 3-year holding period in relation to the interests acquired.

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