Federal Budget 2021-22: Attracting and retaining talent – changes to Employee Share Scheme rules, superannuation and other measures
Tax Law - 12 May 2021
One of the primary aims of the 2021-22 Budget is to reduce unemployment below 5%. To support this, the Budget has made a number of announcements relating to the Employee Share Scheme rules, Superannuation, other employment measures and self-education expenses.
Notably, Employee Share Schemes are now more tax effective for employees, the superannuation de minimus will be removed and the Government has announced a number of other measures intended to increase workforce participation assisting us to attract and retain talent.
Employee Share Schemes – more tax effective for employees
Employee Share Schemes (ESS) are an incentive introduced by the Government aimed at assisting start-up companies and small businesses to retain valuable employees in their business to assist with growth and innovation.
Currently, where an employee has an option to acquire share/s in their employer under an ESS, the ESS provisions will trigger a taxing point for the employee if they cease employment. However, the Government has announced in the 2021-22 Budget that it will remove this taxing point. The announced measures should reduce the risk that the ESS rules trigger a taxing point for an employee with an option to acquire share/s under an ESS, prior to the employee exercising the option and receiving the shares upon cessation of employment.
This change will result in the tax being deferred till the earliest of when there is no risk of forfeiture and no restrictions on disposal or 15 years.
The Government also announced relief from the current disclosure and licensing requirements for unlisted companies. An employer may loan money to an employee to fund the acquisition of a share or option under an ESS. Under the Government’s announcement:
- Where the employer does not loan money to the employee, the employer will not be required to file ESS reports with the Australian Taxation Office (ATO); and
- Where the employer does loan money to the employer, the employer will not be required to file ESS reports with the ATO where the shares or options being issued to all employees are valued at $30,000.00 or less in each income year.
These changes should result in in more employers and employees participating in the ESS regime due to increased cash flow for the employee, through the elimination of the cessation of employment taxing point, and the employer, with the reduction in disclosure requirements resulting in a less costly exercise to implement an ESS.
This change will apply to ESS interests issued on or after 1 July 2021 following Royal Asset of the relevant legislation.
The ability to attract and retain employees will be critical to increasing workforce participation, and the 2021-22 Budget has made several announcements relating to superannuation that should assist with this aim.
Currently, there is no requirement for an employer to make superannuation payments for employees who receive less than $450.00 per month. This will be removed with anticipated effect from 1 July 2022, thereby addressing inequity in the superannuation system by extending superannuation obligations to cover lower paid workers who also need to save for retirement.
The Government estimates approximately 300,000 individuals would receive additional superannuation as a result of this measure, of whom approximately 63% are women. The measures will however introduce additional administration and compliance costs for employers.
Currently, individuals aged 67 to 74 must meet the work test (working at least 40 hours in any 30 day period during the income year) to make or receive non-concessional superannuation contributions. This test will be abolished. This will provide planning opportunities for individuals in this age bracket to make non-concessional superannuation contributions, including using the bring-forward rule.
The concessional and non-concessional superannuation contribution caps will be increased due to indexation, as follows:
Currently, the first $250.00 of an individual’s allowable income tax deduction for self-education expenses is non-deductible. The 2021-22 Budget has announced this exclusion will be removed, allowing increased deductions for self-education expenses, including for individuals who may not have exceeded the $250.00 exclusion.
Other employment measures
The Government has announced a number of other measures intended to increase workforce participation, including:
- Extending the JobTrainer fund to fund an additional 163,000 places in vocational education and training for school-leavers and young and unemployed individuals; and
- Extending and expanding the Boosting Apprenticeships Commencements wages subsidy, which is intended to support more than 170,000 apprentices and trainees.
The information contained in this blog is general in nature and should not be considered to be legal, tax, accounting, consulting or any other professional advice. In all cases, you should consult with a professional advisor familiar with your factual situation for advice concerning specific matters before making any decisions. By reading this blog, you confirm your understanding of this disclaimer.