Government proposes to increase value limit available under employee share schemes

Employee share schemes (ESS) are intended to incentivise employees by allowing them to share in the growth and success of the business for which they work, by providing them with the opportunity to invest in the business. However, the current regulatory framework around ESS is complex and fragmented which usually discourages small businesses from offering an ESS.

According to the media release issued by Treasury on 13 November 2018, the Government proposes to simplify and extend the current regime by:

  • creating a dedicated exemption for disclosure, licensing, advertising and on-sale obligations under the Corporations Act 2001;
  • increasing the value limit of eligible financial products that can be offered in a 12 month period from $5,000 per employee to $10,000 per employee;
  • expanding employee share schemes to include contribution plans, where an employee can make a monetary contribution to acquire eligible financial products; and
  • allowing small businesses to offer employee share schemes without publicly disclosing commercially sensitive financial information unless they are otherwise obligated to do.

These proposed changes appear to be a further attempt by the Government to make employee share schemes more attractive by improving the taxation treatment and limiting disclosure requirements, after the changes which took effect in July 2015.

The main changes which occurred in July 2015 were:

  • in relation to ESS interests acquired under tax deferred schemes, increasing the maximum deferral to 15 years after the ESS interests are acquired;
  • the significant ownership test and voting rights test were changed to include all rights not only share ownership;
  • a refund of tax paid if an employee acquires rights however later chooses not to exercise these rights; and
  • the start-up companies’ concession, where eligible ESS interests will receive preferential tax treatment as long as eligibility criteria are met.

Timing of the newly proposed amendments have yet to be announced.

Hamilton Locke is a corporate law firm specialising in complex corporate finance transactions, including mergers and acquisitions, private equity, distressed investing and special situations, capital markets and alternative financing.