1. Do you adapt the ESPP to the Australian tax laws?
This will make it more relevant and tax effective for employees. For a Company this means they will need to adapt some terms of the Plan Rules or create an Annexure forAustralia.
The typical Plan inAustraliais a salary sacrifice plan (a pre-tax plan instead of post tax plan), with matching or free company shares instead of a discount amount e.g. for every ten shares that an employee buys the company provides 1 share free. There is a limit for pre-tax share purchases which is A$5,000.
Commonly there is no look back provision inAustraliait is the price at the time of purchase that is used.
If the ESPP is applied without changes then the discount only will be subject to tax and the shares bought with the discount amounts should be subject to a restriction to defer income tax until a later date. This restriction on sale is typically 1 – 3 years.
In both situations it is typical to have a purchasing period each quarter.
If there is no adaptation to the Plan then typically it will be less attractive to Australian employees, as it is less common inAustralia. Take up rates tend to be fairly low (below 2 – 10% of the employees offered as opposed to up to 40% where the plan is pre-tax with matching shares).
2. Ensure that a prospectus exemption is relied upon
A listed Company (listed on NYSE or NASDAQ) usually tries to comply with the ASIC (Australian Securities and Investments Commission) Class Order exemption 03/184 to avoid prospectus filing requirements.
This is a fairly simple process to comply with provided the offer document/communication document given to employees at the time of the offer, contains certain information.
3. Understanding the Tax
If the ESPP has a pre-tax element or a discount then a Company needs to comply with Australian Tax Office reporting each year, i.e. file a report with the ATO on 14 August each year and provide a tax statement to all employees who have a taxable transaction by 14 July each year.
Payroll tax may be payable on the discounted amount in certain states and this is generally payable at the time of acquisition of the shares or vesting if this is later.
It is advisable that an Australian employee tax summary is created for the employee communications booklet.
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