The Employee Share Schemes (ESS) start-up concession provides tax advantages for eligible companies, making it an attractive option for rewarding employees with equity.

Below is a summary relating to pros/cons of, and accessibility to, the concession (*).

Pros:

  • though taxed ‘up-front’, it is likely to reduce the amount to be included in assessable income to nil.
  • for the 50% CGT discount, an ordinary share will be treated as being acquired when the option / right was acquired (not when the right was exercised).

Cons:

  • ‘minimum holding period’.
  • notwithstanding the ESS start-up concession effectively results in nil assessable income, it may not result in a nil value. That value may be subject to payroll tax.

Accessibility:

Two (2) separate parts may be accessible; i) the concession itself, and ii) the ‘safe-harbour valuation methods’, particularly Method 1 (effectively net tangible assets).

To access the concession itself, broadly:

  • no equity interests listed on a stock exchange.
  • incorporated for less than 10 years.
  • company has aggregated turnover not exceeding $50 million.
  • if share issued, discount is no more than 15% of its market value (noting there is an additional provision relating to broad availability of schemes).
  • if right issued, exercise price must be equal to or greater than the market value of the share.
  • employer is an Australian resident.
  • relates to ordinary shares only (and not in share trading and investment companies).
  • minimum holding period: employees must hold the ESS interests (or any share acquired as a result of exercising the interest) for a minimum of either three years or until the employee ceases
  • employment (the Commissioner may reduce this timeframe but only in specific circumstances).
  • 10% limit on shareholding and voting power.

To access Method 1, in relation to the ‘Valuation Time’:

  • reasonably anticipates there will not be a change of control within the period ending 6 months thereafter.
  • has not raised capital of more than $10 million during the period of 12 months immediately before.
  • has either been incorporated for not more than 7 years or is a ‘small business entity’
  • prepares a financial report that complies with the accounting standards for that year in which it occurs.

For Method 2, I refer you to ESS 2015/1.

In respect of a company’s obligations for ESS, we can assist with payroll tax, ESS statements / ESS annual reports, and AASB 2 Share-based Payment valuations.

(*) Note: Once a company is listed, it can no longer access the ESS start-up concession. For more insights into the Australian IPO landscape in 2024, see HLB Mann Judd’s 2025 IPO Watch Australia Report.

This article first appeared in the Autumn 2025 issue of HLB Mann Judd Perth’s Client Alert.