Can I Cash My Employee Stock Options?
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The Government has published exposure draft legislation to lessen the taxation of Australian employee share and share option plans. If implemented, tax changes introduced inthat effectively put a stop to the use of employee share option plans in Australia, will be reversed, and wider tax concessions for share and option plans will also be introduced. This draft legislation follows an announcement made in October of last year see our previous update in October The changes are proposed to apply to shares and options acquired on and from 1 July Currently, options that qualify for tax deferral are taxed at the earliest to occur of the following:.
It is proposed that options that qualify for tax deferral will be taxed at the earliest to occur of the following:. The increase in the maximum tax deferral period, from 7 to 15 years, will apply to share plans as well as option plans. Currently, deferred taxation is only available for employee share and share option plans where there is a real risk that the employee will forfeit the share or option — normally this is satisfied by a minimum term of employment forfeiture condition.
It is proposed that the risk of forfeiture will no longer be a condition of option plans, provided there is a restriction sell your employee stock options dubai disposal of the options. If introduced, companies that qualify for this new concession will be able to issue certain shares or options to employees with no tax payable up front.
Options must have an exercise price equal to or greater than the current market value of a share to qualify. The employee will then hold the shares or options as a CGT asset, paying tax only on an eventual disposal of the shares.
There will also be no taxing point sell your employee stock options dubai options are exercised and shares are obtained. It may be that the benefit of this concession is somewhat limited unless the Federal Government can be convinced to amend the exposure draft legislation.
The greatest difficulty with this proposal - establishing the market value of shares in start-up companies - remains largely unaddressed at this stage. The exposure draft legislation does include a facility for the Commissioner of Taxation to implement safe harbour valuation methods in future by regulation, and the Government has indicated they will continue consultation with industry in this area.
Other conditions, broadly matching those which apply to the current up-front and tax deferral concessions, will also apply:. With shares, the upfront discount will never be taxed, as the gain for CGT purposes will be the sale price less the market value of the shares when issued. In the case of options, tax on the discount is effectively deferred sell your employee stock options dubai the options are exercised and the resulting shares disposed of, at which time the gain for CGT purposes will be the sale price less the aggregate of the amount paid by the employee to acquire the option and the exercise price.
Currently, where an employee pays tax on the discount on an option e. Under the proposed sell your employee stock options dubai, it appears that a refund of tax will now be available in these circumstances.
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