In a bid to streamline and simplify the process for start-ups and founders, the Employee Share Scheme (ESS) received a significant revamp with regulatory reforms seeing a relaxation of the rules.
Providing a boost for start-ups and founders who want to offer their staff equity, there will be around $550 million in tax incentives for employees under the ESS. Through the scheme, employees will be eligible for special tax concessions on shares owned. Prior to the government’s reform, employees were only eligible to the concessions while they were employed at the start-up.
Stimulating growth for start-ups and entrepreneurs
The ESS reforms are aimed at stimulating growth for start-ups and entrepreneurs, allowing founders who do not have the initial capital to acquire employees which will assist in talent retainment and to scale their start-up.
The regulatory reforms include:
- Completely removing Corporations Act 2001 (Cth) (Corporations Act) requirements for ESS offers to employees or directors who do not pay or incur debt to participate in these schemes
- If an ESS requires payment to contribute, a streamlined set of obligations under the Corporations Act will apply
- For ESS offers by unlisted companies, the value cap, under which Corporations Act requirements do not apply, increases from $5,000 to $30,000
- Consolidating exemptions and class order relief from disclosure, licensing, hawking, advertising and other obligations under the Corporations Act
- Relaxation of the requirements to lodge disclosure documents
The changes to the cessation of employment tax will apply to the employee share scheme on or after July 1, 2021 following Royal Assent.
An ESS is frequently used by start-ups and viable but cash poor businesses to attract employees when the business would be unable to compete with the salary and wages offered by larger and more established businesses. These reforms will make it easier for businesses to offer an ESS and will support Australian businesses to attract and retain the talent they need to compete on the global stage.
How can Walsh Accountants help?
An ESS agreement could provide a great opportunity for a cash strapped start up to attract the great talent they need to scale and grow their business.
If you’re interested in ESS, contact our Business and Entrepreneurial Support division for a confidential discussion based on your personal circumstances.