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- Tax alert: Changes to Employee Share Scheme Tax Laws
The 2015 Employee Share Scheme (‘ESS’) reporting deadline is fast approaching.
Reporting for the tax year ending 30 June 2015 is due for lodgement shortly. If an ESS taxing point has occurred during the 2015 tax year in respect of discounted ‘ESS Interests’ (i.e. shares or rights) your company (or a holding company) has provided to your employees, directors or possibly consultants/contractors (collectively referred to as ‘Employees’), then the company will be required to provide an ESS statement to the relevant Employee by 14 July 2015. Additionally, you must also provide an ESS annual report to the Australian Taxation Office (ATO) by the 14 August 2015. We will be preparing and lodging these reports through the ATO’s Electronic Commerce Interface.
The corresponding payroll tax liability on any ESS discount(s) will also need to be reported in the annual payroll tax reconciliation/s by 21 July 2015, where not previously reported in your monthly payroll tax returns.
If you require assistance from us to determine whether an ESS taxing point arose for any of your Employees during the 2015 tax year and (where necessary) to complete the above reporting requirements, please do not hesitate to contact us to discuss.
Legislation effecting the taxation of ESS Interests has just been passed by Parliament and is awaiting Royal Assent and will affect awards made on or after 1 July 2015. Providing certain conditions are met, the following proposed changes will impact the taxation of ESS plans for all companies:
- The ESS taxing point for ESS rights that are eligible for deferred taxation will usually be when they are exercised (rather than on vest as currently).
- The maximum deferral period for the taxation of ESS Interests will be extended to 15 years (from 7 years currently).
- Tax paid on ESS rights that are never exercised and expire and lapse will be refundable through a tax return amendment. Under the current ESS rules, lapsed options would often give rise to a capital loss.
- New approved market valuation methodologies to reflect market conditions ('Safe harbour' valuation methods) are being introduced. This will assist in valuing unlisted shares.
- The level of share ownership or voting rights which an employee can have and still be eligible for a tax deferral on ESS Interests is being doubled from 5% to 10% (with certain modification of the rules in this area).
In addition, there will be significant concessional tax treatment of ‘eligible’ ESS Interests provided by qualifying ‘start-ups’, being companies (including their related entities) that are:
- Unlisted; and
- Incorporated for less than 10 years; and
- Have aggregated turnover less than $50 million