With plenty of media coverage surrounding the recent changes to the Employee Share Scheme by the Australian Government, the main question for businesses is “How do these changes affect me?”
Here are 5 key things startups need to know about Employee Share Scheme changes, and how they will affect your business.
1. Is your startup eligible for the startup concession?
To be eligible, your start up must have not more than $50million turnover, be unlisted, and be incorporated for less than 10 years
2. What is a discounted option?
An option is a privilege that gives the person holding the option the right to buy or sell at an agreed upon price.
A discounted option is an option provided for less than the market value.
3. What are the changes?
Employee discounted options that are issued from the 1st July 2015 will be generally taxed when they are converted to shares (i.e. when you sell the shares), not when received.
The discount is not itself subject to income tax.
The maximum time for tax deferral has been extended to 15 years, from 7 years.
4. Requirements for the tax concession
You need to hold the options for a minimum of three years.
If a taxing point, a Capital Gains Tax (CGT) event, occurs before the sale, you will not be able to defer the tax further
A summary of CGT events can be found here.
5. Quick Estimate of the amount of Tax you will pay upon sale
Number of options x (Sale price per share – exercise price of the option)
What are your questions or concerns about changes to Employee Share Schemes? Tweet us your question and we’ll do our best to assist.