In the factsheet Budget 2021-2022: Tax Incentives to Support the Economy (PDF, page 10), released on May 11, the Treasury of Australia announced that it would propose reforms to enhance employee ownership. The reforms, if enacted as proposed, would change the time at which taxes are due on income from tax-deferred employee share schemes (ESS), which is currently taxed at the cessation of employment.
For shares granted under an ESS, the reforms would defer taxes until the point at which there is “no risk of forfeiture and no restrictions on disposal,” while for options, the tax date would be when the employee exercises the option and the resulting shares have no restrictions or risk of forfeiture, although the longest possible deferral for taxation would be 15 years. The reforms would also simplify the process of implementing an ESS by reducing disclosure and other requirements. Those requirements would vary based on whether employees receive the awards as grants or pay for them with fees or via company-arranged loans.
The Treasury notes that the purpose of these reforms is to “make it easier for companies to offer ESS to employees giving more Australians a share in the economic value they create through their hard work and ingenuity.”
In its public statement reacting to the news, Employee Ownership Australia (EOA), an association of employee ownership companies and providers, welcomed the announcement as a sign of the government’s “recognition of employee ownership as a key driver of employee performance and retention.” It also noted that in a 2017 survey of public companies, the vast majority (87%) listed the existing time of taxation as the largest barrier to more employee ownership.
Writing in the Australian Financial Times, Paul Smith noted that technology companies in particular welcomed the change, and that “Australia is the only jurisdiction in the world that taxes employees at this point.” He also observed that tech company leaders were still “lamenting the sluggish speed of innovation-focused reform” for ESS in Australia.
EOA and the Global Equity Organization will host a virtual conference May 25 to 27.
With this announcement, Australia becomes the latest government to announce possible new initiatives to support employee ownership, including Canada, California and Colorado, Texas, and New York.