Legislation amending the taxation of employee share schemes today passed through the Senate without amendment, with the new rules to apply to shares or options issued to Australian employees on and after 1 July 2015.

These are welcome amendments, as they improve the tax outcomes for employees – particularly those employed by eligible start-up companies.

The key changes to the existing law contained in these measures are as follows:

  • employees issued with options will typically now be taxed on exercise, not on vesting;
  • employees of eligible start-ups where the shares or options are issued at a small discount will be eligible for “capital account” treatment, with potential for discount capital gains where the equity has been held for 12 months prior to sale;
  • the significant ownership and voting rights limitations have been relaxed from 5% to 10% (on an associate inclusive basis);
  • the maximum tax deferral period has been extended from 7 years to 15 years; and
  • the “tax tables” used for valuing options have been altered to broadly depress the safe harbour option valuations for employees.

Importantly, start-ups in receipt of venture capital funding from venture capital limited partnerships or early stage venture capital limited partnerships will not have their turnover aggregated with other portfolio companies when determining the $50m aggregated turnover test for start-up eligibility.

For further details, please refer to our previous updates on these measures, to be found:

Changes to the taxation of employee share schemes: draft legislation released; and

Changes announced to the taxation of employee share scheme

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