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Changes to the taxation of employee share schemes

Changes to the tax treatment of employee share schemes, which took effect on 1 July 2015, means employees can now share in and gain from the future growth and success of a business.

The changes allow employees, who are issued with share options, to defer paying tax until they are able to grasp a benefit from the options. The new 15-year tax deferral period gives employees enough time to cash in their shares and options while removing the risk of paying an unfunded tax liability. This was a reoccurring issue when the maximum period of tax deferral was seven years.

As part of the improvements, eligible start-up businesses will also be offered a tax discount on employee options and share schemes. However, the start-up business, the scheme and employee must meet specific conditions to be eligible for the start-up concession.

The start-up business:
– must not be listed on the stock exchange.
– have an aggregated annual turnover of no more than $50 million.
– must be an Australian resident business.
– must have been incorporated for less than ten years before the share or option is granted.

The scheme:
– a share must be issued at a discount of 15 per cent of the market price or less.
– options must have an exercise price that reflects the current market value of a share or a greater value.

The employee:
– ┬ámust hold employee share scheme interests for at least three years.

Employees who acquire shares and held them for at least 12 months will benefit from the 50 per cent Capital Gains Tax discount when they sell their shares, including employees who acquire options that qualify for the start-up concession.

Posted on 13 July '15 by , under Tax.

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