The 2020/2021Budget mentions $500mil in tax incentive for employees who are shareholders - this is a huge incentive!
Sydney, Australia - May 12, 2021 /PressCable/ —
Changes to the Employee Share Scheme rules announced overnight were specifically designed to “make it easier to offer Employee Share Schemes to provide more Australians with a share in the economic value they create through their hard work.” This concept has had strong bi-partisan support over many years and the academic research on the impact of Employee ownership on productivity, profitability, sustainability and employee engagement are overwhelmingly positive, according to Craig West from Succession Plus.
Craig continues to say “we have seen a 400 % (not 4 % or 40 %) increase in enquiry and implementation of Employee Shares plans since Jan 2020 (pre-COVID) as employers looked to lock in key people, motivate those working from home and reduce risk”. The research also shows that employees in employee-owned businesses retire with more wealth than their counterparts in non-employed owned businesses.
The budget mentions $500mil in tax incentive for employees who are shareholders – this is a huge incentive!
Craig says the changes cover three main areas:
Good – reducing the regulatory requirements for complex disclosure documents and associated legal and compliance issues, making implementation simpler and less onerous.
Better – removing the taxing point attached to when an employee leaves the business allowing employees to hold the shares and pay tax later. This may not work in many SMEs as the idea of an employee leaving (assumedly to work with a competitor or similar business) and still owning shares in the business is not popular and in fact many of our plans prevent this.
Best – extending the current $5,000 annual limit per employee on salary sacrifice (and loan / contribution type plans) to $30,000 – this is substantial – the $5,000 limit was “supposed” to be changed in 2018 to $10,000, but this change allows employees to acquire a meaningful amount of equity in a tax effective manner.
These changes (subject to the detail) will certainly encourage and increase use of Employee Share Ownership Plans as a tool for Business Succession (right in the middle of the largest transfer of wealth in history) as many baby boomers head towards retirement – many with a focus not just on financial harvest but also on looking after loyal employees and leaving a legacy.
In the same way, the research also shows employees earn more, stay longer, are more productive and far more engaged and “happier” at work – and retire with 40 % more wealth. This combination produces a win-win-win-win outcome – a win for the business, the owners/shareholders, the employees, and the customers.
What’s missing according to Craig West – many of the submissions to the two major recent government enquiries (including our own) focus on two key areas:
• The tax concessions are limited to each employee owning less than 10 % of the equity in the business – in small businesses – for example, a professional services firm with 4 or 5 key employees – each would necessarily own > 10 % to transfer the company into employee ownership. This limitation and focus on broad based plans limit the utility of these plans for succession.
• The taxation rules also favour broad based ESOP models (which are fine in some cases but do not always facilitate good succession outcomes) by requiring the plans be available to at least 75 % of employees with greater than 3 years’ service. These are often not suitable in professional firms where ownership is typically focused on “key” employees.
“If we can incorporate changes that address these key concerns, then the 400% increase will turn onto a tidal wave” says Craig.
About Craig West, he is a strategic accountant with over 25 years’ experience advising business owners on Business Valuation, Succession and Exit planning and Employee Share Ownership Plans (ESOP). His business www.succession.plus is the largest Business Succession and Exit planning advisory firm in Australia with 23 advisers as well as offices on NZ & UK. He is finalising doctoral studies on using ESOP as a Business Succession tool.
Contact Info:
Name: Craig West
Email: Send Email
Organization: Succession Plus
Address: Level 6/50 York Street, Sydney, NSW 2000, Australia
Phone: +61-1300-665-473
Website: https://successionplus.com.au/
Source: PressCable
Release ID: 89013648
