Employee share schemes (ESS) have long been utilised as an invaluable tool to encourage and motivate key personnel to invest themselves in the future of the company.

They’re also particularly appealing to boot-strapped start-ups who may not have the capital or cash-flow to attract and retain employees.

ESS for employees

For the employees, participation in ESS can offer an opportunity to carve out a better package that includes a potential share in profits. They can help employees build wealth and provide them with fairly attractive tax concessions.

Under the existing regime for share schemes however, employees are required to comply with onerous disclosure obligations. These requirements are can be particularly burdensome for smaller start-up companies who don’t have the resources to produce appropriate Disclosure documents.

Additionally, these documents are made publicly available resulting in start-up companies having to release potentially sensitive commercial and financial information.

Innovation report

As part of the recent Innovation Report, these obligations were identified as one of the key causes for low utilisation rates of ESS by start-ups.

In response, the government has proposed several amendments to the disclosure obligations that seek to limit the disclosure requirement and allow an exemption to the requirement to publicly release commercially sensitive documents for these new businesses.

These amendments will complement and support the recent introduction of generous tax concessions for employees taking advantage of an ESS. These concessions include deferring tax obligations on share options until a true benefit is realised. Eligible start-ups will also be able to offer shares to employees at a discount and have that discount exempt from tax.

A company will be considered an eligible start-up for the purposes of the Employee Share Scheme if it (or its subsidiaries or holding company) was not listed on the stock exchange, if it has been incorporated for less than 10 years and its turnover does not exceed $50 million.

While the tax provisions are already in place, the reduced disclosure obligations are expected to commence from 1 July 2016.