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13 May 2021
Tapestry
Alert: Global
Early
taxation in Australia removed
Dear
Client
On 11 May, the Australian
Treasurer handed down the 2021-22 Budget.
The
Treasurer announced various taxation measures aimed at reducing the
unemployment rate. Amongst these measures was the removal of a tax
trigger for tax-deferred Employee Share Schemes (ESS) at the
point of participants leaving employment.
Currently, when an individual leaves employment and retains any
unvested shares under an ESS in Australia, taxation will generally
be triggered at that time.
The Australian Government has proposed removing this earlier
taxation point for share and option schemes. The moment of taxation
will then generally be the point at which the award is no longer at
risk of forfeiture and there are no restrictions on disposal (in
practice this would be the point of vest of a conditional award or
exercise of an option).
This change will apply to ESS interests issued from the first
income year after the date of Royal Assent of enabling legislation
(Australian income years commence on 1 July).
The Government also announced that it will remove regulatory
requirements for ESS where employers do not charge or lend to the
employees offered the ESS.
These measures are intended to help Australian companies to engage
and retain the talent they need to compete on a global stage.
We will update you further when we have confirmation on the date
these rules come into effect.
Tapestry
comment
Taxation on
cessation of employment can result in individuals suffering a
"dry" tax charge (i.e. an unfunded charge as no share
sale proceeds will be available to fund the tax charge). This can
damage the effectiveness of "incentive" awards. This
change will help to bring Australia in line with many other
jurisdictions, making administration of leavers much easier for
global companies and giving "good leavers" the ability to
settle taxes due at the applicable tax point. Whilst this removal
of early taxation for leavers is beneficial for ESS, the new rules
being applicable to issues of ESS interests following
implementation means the benefits may not be recognised for some
time.
If you would like to discuss this update, or anything else, please
do contact us.
Chris and
Emilie
 
Chris Fallon
Emilie Sylvester
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