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Start-up Employee Ownership Plan

Employees are a company's greatest asset. But for many business owners, attracting and retaining key employees has been one of their biggest challenges.

Employee Share Ownership Plans or ESOPs are increasingly being used to motivate and retain key people within an organisation. Companies with high degree of employee ownership tend to grow faster, live longer and ride out hard times better, attract better paying customers, and contain better workplace cultures.

Start-up or smaller businesses can also take advantage of these benefits through Start-up ESOPs. These plans have been introduced by the government as part of the government Industry Innovation and Competitiveness Agenda and are simple to set up and use. They also have these significant tax advantages for participants, in example:

  • No upfront tax.
  • No tax at vesting.
  • No tax on exercise.

Participants generally only taxed on disposal of shares or options and with 50% CGT discount.

The Start-up ESOP plans are restricted to businesses that meet all of the following conditions, however:

  • Not listed on public exchange.
  • Aggregated turnover less than $50m.
  • Less than 10 years old.
  • Australian resident taxpayer.
  • Shares must be offered to 75% of employees with more than 3 years' service.

In addition, employees must also meet the following criteria:

  • Must collectively own less than 10% of shares (and voting rights).
  • Must be employed by holding company or subsidiary or subsidiary.
  • May only receive a 15% or lower discount on shares.
  • Must hold shares for at least 3 years.
The SMEA Grant is $3,000 and 25 are available.

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