Draft law simplifies employee equity schemes

The government has released draft legislation to relax regulatory measures around employee share schemes, making it easier for businesses to attract workers with equity.

The legislation, which was first announced in the 2021-22 budget, proposes to alter the existing regulatory and tax arrangements for employee share schemes (ESS). 

Under the new measures, the cessation of the employment taxing point for tax‑deferred ESS would be removed. Tax would be deferred until the earliest of the remaining taxing points.

In announcing the legislative draft, Assistant Treasurer Michael Sukkar noted the hope that these reforms would allow Australian companies to stand up against international corporations that are increasingly offering share incentives to their workforce.

“The reforms make it easier for businesses to offer ESS and will support Australian businesses to attract and retain the talent they need to compete on the global stage,” Mr Sukkar said.

Under the changes, employers will not have to consider the Corporations Act 2001 when making ESS offers, so long as employees do not pay or incur debt to participate in these schemes.

Additionally, the legislation would increase the value cap under which Corporations Act 2001 requirements do not apply to $30,000 for all other ESS offers of unlisted companies.

The intention is to allow businesses to avoid incurring unnecessary regulatory costs associated with considering and complying with disclosure, licensing, anti‑hawking, advertising, and on‑sale obligations.

It also includes measures to expand relief for unlisted companies to include contribution plans and limited or no recourse loans, where an employee can make a monetary contribution to acquire certain financial products.

The government’s statement on the new legislation said it hoped these relaxed measures would make it easier for a viable but cash poor business to attract employees with ESS offers in addition to wages.

Public consultation on the exposure draft legislation and explanatory material will close on 25 August 2021.