Date posted: 12/05/2021 3 min read

Australian Federal Budget 2021-22 - Employee share scheme changes

CAs will have a range of conversation topics with employers assuming the changes are enacted

In Brief

  • Cessation of employment will not trigger a taxing point for deferred tax employee share scheme arrangements
  • Wait for legislation to be enacted

The income tax treatment of employee share schemes (ESS) has again been changed in Australia’s 2021-22 Federal Budget, this time in a manner advantageous to those employees fortunate enough to work for a company offering this benefit.

Policy-wise, ESS attract tax concessions because they seek to align the interests of employees with those of their employers. Employers save on cash outlays and can attract and retain talent.

ESS can be provided to employees at a discount to their market value, and it is this discount that may attract tax. The key question is when?  

Employers have long sought improvements to both the ESS tax and ASIC relief rules, and the government has been lobbied particularly hard in recent months as the war for talent escalates. 

What’s the change?  

Currently, it is possible to defer the taxing point in situations where the ESS qualifies for deferred tax treatment. However, if tax is deferred, one of the triggers for imposing tax on the ESS discount is when employment ends.  

The government has now decided to remove cessation of employment as a taxing point.  

When does the change take effect?  

Here’s the catch. The proposed change will apply to ESS interests issued from the first income year after the date of Royal Assent of the enabling legislation.  

So this is very much a wait-and-see measure and previous changes to ESS legislation have been closely scrutinised by Parliament.  

The government has now decided to remove cessation of employment as a taxing point in employee share schemes

CA Budget conversation starters

  • Identify corporate clients currently offering ESS
  • Suggest the employer implement a communications strategy for eligible employees, highlighting the proposed change and advise that the progress of enabling legislation will be monitored
  • In the meantime, convey to employees that cessation of employment continues to trigger a taxing point for tax-deferred ESS.

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