The Employee Share Plan (ESS) legislation will be reformed in Parliament to make it easier for employees who issue shares to leave their jobs without facing a huge tax burden, and to allow start-ups and small businesses to provide employees with equity.
The government’s move is aimed at simplifying the current legal framework and expanding existing exemptions. Currently, employees are liable to pay taxes when they leave the company, lift restrictions on the sale of shares, or 15 years after issuing shares to them.
“Our employee stock ownership plan reform complements other tax measures to promote investment [and] Promote innovation and ensure our economic recovery,” Finance Minister Josh Frydenberg said in a statement. tweet.
The new rules announced by the Minister of Finance this week will change the way employees impose taxes on stocks acquired through ESS. Employees who have received stocks or options will no longer be taxed after they leave, which can encourage them to start their own businesses and contribute to the entrepreneurial ecosystem.
What is an employee stock ownership plan?
Employee stock ownership plan It is a way that employers can provide employees with shares or options related to their employment. Companies use share plans to attract, retain, and motivate employees.
They also align the interests of employees and shareholders. Common shares that provide company equity are usually issued by larger companies.
Employees of smaller companies may receive dividends, but they will not receive additional shareholder rights, such as voting rights at the annual general meeting.
What are the benefits of ESS for enterprises?
Employee share plans are useful for cash-strapped companies that cannot compete with the salaries offered by large companies. In addition, offering company equity may lead to greater employee engagement.
Dominic Woolrych, the CEO of Lawpath, launched an employee stock ownership plan two years ago and found it to be crucial in employee engagement and turnover.
“We launched an employee stock ownership plan to all employees 24 months ago and found it to be very helpful in improving employee engagement and turnover. We hope that the new changes will enable more companies to provide employee stock ownership plans and benefit from it.”
“The changes to the rules of the employee stock ownership plan are a positive move for Australian start-ups and the business community. We are familiar with the 2015 legislative changes and the employee stock plan participation through the “Easy ESS” software available on the Australian Taxation Office website space.
“We help 1,000 startups and companies establish and maintain their stock plans every year. What we see through this is that the processes and rules are complicated and vague.
“Although the government has tried to standardize the process for companies to apply for and support stock or option plans in order to launch the plan and maintain its compliance, it still requires continuous lawyers and accountants, which is costly for start-ups and small businesses. “He said.
Dominic also stated that companies spend an average of US$3,000 to US$5,000 per year to maintain compliance with their plan, which does not include the initial cost of setting up the plan, which ranges from US$2500 to US$10,000.
“Eliminating red tape and making it simpler, especially for new companies, can establish these plans very autonomously and quickly. This is a huge victory for our entrepreneurial community. Especially the reality of the current shortage of talent.
“Candidates now hope and expect employers to provide some type of equity incentive plan, which is an important way to help the team feel that they have skin in the game,” he said.