Wait continues for employee share scheme reforms

Long-awaited reforms to employee share schemes aren’t expected anytime soon and may not be introduced before the next election, despite the federal government promising changes in the May budget and first revealing plans three years ago.

The Federal Budget in May unveiled significant reforms to the employee share scheme that the government said would bring it “in line with the rest of the world”.

Employee share schemes are used by companies, typically startups, to attract employees by issuing them shares in the company, usually at a discount.

The changes will see an employee no longer taxed on the shares as soon as their employment at the company ends, something which has previously led to employees being forced to sell their shares to meet the tax liability.

Government is also planning to remove regulatory requirements for the issuing of employee share schemes where the employer doesn’t charge or lend to the employees they are offering the shares to. There are to be streamlined requirements too, with a cap of $30,000 per employee per year, up from the current $5000 cap.

This latest announcement superseded the Coalition’s previous plan to reform employee share schemes. In 2018 Treasurer Josh Frydenberg revealed plans to increase the cap to $10,000 and introduce new exemptions for startups and SMEs from reporting and disclosure requirements.

Despite running a number of consultations, the government never moved to actually introduce these reforms, and they have now been replaced by this year’s budget announcement.

But the reforms won’t be in place for the 2021-22 financial year, and it’s unclear when they will be introduced to Parliament and come into effect, with doubts they will be in place before the next federal election.

A Treasury spokesperson offered little detail on when the changes will be introduced, and even when the draft legislation will be unveiled.

“The government will consult on draft legislation to implement the budget measures in due course,” the spokesperson told InnovationAus.

The budget did not plan for the changes to come into effect until 2023-24, with a cost of $345 million predicted. The changes will then cost $205 million in the following financial year.

This means the reforms to employee shares schemes will likely not come into effect until five years after the federal government first announced plans to bring the program into line with the rest of the world, and two years after the most recent announcement.

It also means that there will likely be a federal election before the legislation is introduced to Parliament, with Australians heading to the polls early next year at the latest.

The 2018 changes announced by the Coalition were to “help employers attract, retain and motivate employees and grow their businesses”. At the time, the government acknowledged the scheme is “complex and fragmented and ultimately discourages some businesses from offering employee share schemes”, but it has remained unchanged.

In the budget announcement this year, the government said that employee share schemes are used by companies to “attract, retain and motivate staff by issuing interests such as shares or other financial products to their employees”.

“This measure will help Australian companies to engage and retain the talent they need to compete on a global stage,” the budget documents said.

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