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The Return of the ESOPs: The Rise of the Australian Start-Up

On 15 June 2015, the Federal Government introduced to the Senate its draft bill proposing changes to the Employee Share Scheme (“ESS”) rules.

These changes are proposed to take effect from 1 July 2015 and will make ESS’s more attractive to employees (especially those of eligible start-up companies) and improve the tax treatment of share options for employees. Employee Stock Ownership Plans (“ESOPs”), although once unfashionable, will resurge this winter.

In 2009, the Rudd Government introduced a number of changes to the treatment of tax of employee share schemes. A notable change (among the series of amendments) was tax generally became payable before any monetary return from shares was received. As a result, ESOPs became less attractive to employees which had a detrimental effect on Australian start-ups who heavily rely on such incentives to attract and maintain key personnel.

The Tax and Superannuation Laws Amendment (Employee Share Schemes) Bill 2015 has recently passed the first Senate reading and is on the home stretch to receiving Governor- General assent.

The key changes which are proposed to take effect on 1 July 2015 include:

  • Options will be taxed when exercised;
  • Employees can have ownership and voting rights of up to 10% (previously the limit was 5%);
  • New concessions for small Australian start-ups;
  • The ability for employees to seek refunds for options left to lapse that were taxed at an earlier stage; and

The removal of the requirement for companies to have a "real risk of forfeiture” in their ESSs; instead allowing for the deferral on tax provided the rights are subject to a restriction on disposal.Companies should review their incentive schemes or consider implementing an ESOP as they (and their employees) may benefit from these new changes.

To view the Tax and Superannuation Laws Amendment (Employee Share Schemes) Bill 2015:


18 June 2015

Amanda Ly & Jason Watson