The Treasurer and Minister for Small Business made a joint announcement on 13 November 2018 that the Government was proposing to improve the ’employee share scheme’ (ESS) regime in a number of ways (referring primarily to the taxation regime in Div 83A in the ITAA97).
The most important part of the announcement was that the proposed legislation to double the concessional value of ESS interests, that can be offered in year from $5,000 to $10,000.
- This $10,000 amount will replace the $5,000 limit in s83A-105(4)(c), which applies to shares issued for no consideration, with a market value of no more than $5,000. It only applies to employees who receive these shares as part of a salary sacrifice (or equivalent) arrangement. The effect is that the employee gets these shares, effectively tax free, up to this $5,000 limit – free of both s83A ESS tax and free of CGT, to the extent of the deemed market value cost base, at the time of issue (which can’t be more than the $5,000 amount). The deemed cost base arises under s83A-30.
The Government said it will also amend the ESS regime to:
- expand eligible ESS to include contribution plans, where an employee can make a monetary contribution to acquire eligible financial products; and
- allow small businesses to offer ESS without publicly disclosing commercially sensitive financial information unless they are otherwise obligated to do; and
- create a dedicated exemption for disclosure, licensing, advertising and on-sale obligations under the Corporations Act 2001.
DATE OF EFFECT: Not specified.
CPD questions (answers available)
- Did the Treasurer announce various changes to make Employee Share Schemes more effective – especially for small businesses.
- Is the main change to double the $5,000 limit on the value of shares, issued to salary sacrifice employees, for nil consideration (that is, to increase it to $10,000)?
- In what provision is this $5k limit found?
- Can employees effectively get the gift of this $5k of shares, tax free?