Ready for Australian and UK Year-end Share Plan Reporting?

There are a few countries that require special annual reports for share plan transactions (in addition to regular annual payroll reports).  Australia and the UK are among these countries and are both on a fiscal year that differs from the calendar year.  The UK tax year ended on April 5 and the Australian tax year will end on June 30.

  • The UK Annual Share Plan Return (formerly known as Form 35, for tax-qualified awards, and Form 42, for non tax-qualified awards) is due to Her Majesty’s Revenue & Customs (“HMRC”) by July 6.
  • The Australian Employee Share Scheme (ESS) Return must be filed with the Australian Tax Office by August 14.  In addition, companies are required to provide their Australian employees with ESS statements by July 14.

Both returns (and the Australian ESS statements) can take a while to prepare (especially if companies need to report transactions for mobile employees and/or awards that were adjusted in a corporate transaction) and will need to be submitted electronically.

Please see our client alerts for Australia and the UK for more information on how to prepare the returns and make the submission.  We are aware that the HMRC website was affected by an outage during the month of May, so companies may have less time than normal to make the UK submission.

Our Sydney and London offices are available to assist with the preparation and submission of the returns.

Australian Share Plan Reporting Goes Digital

The Australian tax year just ended (on June 30, 2016) and the deadlines for Australian Share Plan Reports are just around the corner! This year, to make things more complicated, the Australian Tax Office (ATO) has made a number of changes to the reporting requirements for both the Employee Share Scheme (ESS) Statements and Annual Reports.In addition to a new online reporting system, the ATO is requesting additional data for both the ESS Annual Report and Statement, including specific information relevant to mobile employees and start-ups. Continue reading

Understanding the New Tax Rules for Options in Australia

As we reported in our July 2, 2015 client alert, the new Australian share plan legislation received Royal Assent on June 30, 2015 and applies to all equity awards granted on or after July 1, 2015.  Under the new tax regime, stock options are generally taxed at exercise only (not at vesting).

In this post, I want to explore the practical implications of the new legislation for most companies and examine the exceptions to the rule.

Grant Document Changes

Under the old tax regime that was in effect from July 1, 2009 until June 30, 2015, options generally were taxed at vesting which obviously was not a good result for companies nor for employees.  As a result, many companies stopped granting options in Australia altogether.  The companies that persevered (often private companies with no alternatives, such as RSUs, available to them) usually imposed special terms designed to avoid a taxable event prior to a liquidity event or at a time when options were underwater.  To achieve this, they restricted exercisability of the options until a liquidity event occurred and/or until the option was in the money.

For options granted prior to July 1, 2015, these restrictions should continue to be enforced because the old tax regime continues to apply to these grants.  However, for options granted on or after July 1, 2015, these restrictions are no longer needed.  This means companies should revise their award documents and delete these restrictions (usually contained in the Australia appendix to the award agreement). Continue reading

Changes Afoot in Australia

October has been an important month for equity awards in Australia.

New Tax Rules

First, the Australian Government announced on October 14, 2014 that it would revise the tax rules applying to employee share plans.  The legislation still needs to be written and will most likely be effective only for grants made on or after July 1, 2015, but it seems clear that the taxable event for stock options will revert back to exercise (as it was the case for options granted before July 1, 2009).

This is great news for companies that had stopped granting options to employees in Australia after tax rules effective July 1, 2009 provided for tax at the time the awards were no longer subject to a substantial risk of forfeiture (typically at vesting). Apparently, the Australian Government finally realized its mistake after many companies aggressively lobbied for changes and pointed out that, by not being able to grant options, they were not able to compete with companies in other countries that are able to use stock options to incentivize employees. Continue reading

Waiting for ASIC

As most of you are painfully aware, in late 2012/early 2013, the Australian Securities and Investment Commission (ASIC) concluded that restricted stock units (RSUs) should no longer be considered as nil-priced stock options, with the effect that most exemptions from the prospectus disclosure requirement no longer were available for RSUs. This meant that, in most cases, the grant of RSUs to employees in Australia would trigger a prospectus filing obligation, which would be extremely onerous for companies.

While one can debate whether ASIC was wrong in coming to this conclusion, it is clear that ASIC is standing by its decision. It demonstrated as much by publishing a consultation paper in November 2013, under which it proposed to issue a new Class Order exemption which would expressly cover RSUs.

The new Class Order is supposed to replace the existing Class Order exemption (which many companies rely on for the grant of options and the offering of their ESPPs). ASIC initially announced that the new Class Order would be issued in May/June 2014. As you no doubt have noticed, the new Class Order has still not been issued, and ASIC just informed our colleagues in Sydney that it should not be expected any earlier than the third quarter of 2014.

So, what to do while we are waiting for ASIC?

  • If your company has applied for and obtained specific relief from ASIC for the grant of RSUs, the delay is not important and will not impact your grants. You may continue to grant RSUs in reliance on the specific relief. Once issued, the new Class Order likely will provide for transitional rules which will determine how long companies can continue to rely on the specific relief and when they will need to start complying with the conditions of the new Class Order. However, given that the conditions of the specific reliefs granted by ASIC generally are modeled on the conditions of the proposed Class Order (as set forth in the 2013 ASIC consultation paper), it is unlikely that major changes will be necessary. Of course, to be certain, we will need to wait for the new Class Order to be finalized.
  • If your company has been holding off on granting RSUs or has continued to grant RSUs without obtaining specific relief, the delay is obviously annoying. If you have been holding off on granting RSUs, you will probably want to continue doing so and will need to adjust expectations accordingly. Beware that there is no guarantee that ASIC will actually issue the new Class Order in Q3 2014. If you are not willing to play the waiting game (but also not willing to incur any risk), you could still apply for specific relief which is now routinely granted within a matter of 4-6 weeks.

  • For those companies that have continued to grant RSUs (or are tired of waiting and want to grant now), the grants arguably are in violation of the Australian Corporations Act because they are made without a prospectus. Technically, ASIC can apply penalties up to approx. US$100,000 as well as criminal penalties in case of such a violation. However, to our knowledge, ASIC has never applied penalties to companies offering shares in the context of an employee share plan. Our Sydney office thinks ASIC also is very unlikely to apply penalties to companies that grant RSUs (without specific relief or another exemption), especially in light of the fact that the new Class Order will cover RSUs which demonstrates ASIC’s intent not to require a prospectus for such grants. Therefore, practically speaking, the risk of making RSU grants is very low.

Staying compliant

Still, for companies with very strict compliance standards, this may not be sufficient and the wait will have to continue. Alternatively, companies could consider granting another type of award until the new Class Order is issued. Options are not a great alternative because, even though an exemption from the prospectus requirement will probably be available, the tax treatment of options in Australia continues to be undesirable (generally taxed at vesting).

By contrast, restricted stock awards (RSAs) could be a viable alternative, because the existing securities exemptions apply to RSAs (such as the current Class Order exemption or the “20-in-12” exemption) and RSAs are taxed “only” at vesting when the restrictions on the shares lapse. Most companies do not grant RSAs outside the U.S. (or even in the U.S.), given that the tax treatment of RSAs often is undesirable (taxed at grant in many countries) and that RSAs can be administratively more burdensome because shares have to be issued at grant and held in escrow until vesting. Still, for those of you that are desperate to grant a full value award in Australia now, but not willing to compromise on the securities law compliance, RSAs may be the answer.

Meanwhile, we are all crossing our fingers that the new Class Order will indeed be issued by October 2014 and not face additional delays!