An Employee Share Scheme (ESS) is a scheme where employers offer shares or options to an employee in relation to their employment. ESS are designed to align employees' interests to those of the company. In 2015, the Australian government made a number of changes aimed at improving the taxation treatment and administrative arrangements for ESS.

This inquiry was established to examine:

• how effective the changes in 2015 have been in their goal of bolstering entrepreneurship in Australia and supporting start-up companies;
• the costs and benefits of these concessional taxation treatments, and deferred taxing points for options, to the broader community;
• whether the current tax treatment of ESS remains relevant to start-up companies and whether any changes are appropriate to ensure the taxation treatment remains relevant;
• how companies currently structure their ESS arrangements and how taxation treatment affects these decisions; and
• the challenges faced by companies in setting up an ESS arrangement and how the standard documents by the Australian Taxation Office, and introduced in 2015, assist this process and whether additional improvements should be made.

Report overview:

The report highlights the benefits, but also the difficulties in measuring the usage of ESS in Australia (Chapter 2), before examining the effectiveness of the reforms brought about by the Tax and Superannuation Laws Amendment (Employee Share Schemes) Act 2015 (2015 Act) and its impact on the Income Tax Assessment Act 1997 (Income Tax Assessment Act) (Chapter 3).

The report then examines whether any further reforms are appropriate to ensure the current taxation treatment of ESS remains relevant, in particular for start-up companies. The report focuses on the Income Tax Assessment Act and the Corporations Act 2001 (Corporations Act), which both regulate the ESS regime in Australia, and the interaction between the Corporations Act and Australian Securities and Investments Commission (ASIC) class orders.

This report has adopted two roadmaps as recommendations. The first roadmap is contained in Recommendations A and B. In the event that the government would prefer a more iterative approach, the remaining recommendations present an alternative roadmap (see ‘List of Recommendations’ at page xvii).