Throughout my professional career, I have been tasked with by business clients to playing ball with the ESS scheme. At a high level, my observations with clients over the years can be summarised in seven (7) key nuggets as follows:
- Employers do have genuine interests in offering employees equity in a business by retaining and aligning employee interest with the business;
- It is commonly seen being done in start-up companies where the business employers are particularly cash poor;
- It is commonly done so in a ASX small-cap listed space, whereby the taxation implications are not easily understood by the directors and employees who are being directly impacted;
- It is extremely rare to apply the technical concepts of ESS provisions to small to medium enterprises space;
- Whilst the ESS rules provide deferral taxation concessions, they are still somewhat limiting in many given sets of situations;
- It is common to see ESS interests being incorrectly vested to SMSF, causing unintended excess superannuation contributions and taxation complications; and
- It is often seen arrangements falling apart, coming down to complexity (both taxation and corporations laws) in applying the ESS schemes, valuations requirements not being understood, and schemes just simply being more complex than cash transactions.
I now turn my attention to sharing some common tips and traps of dealing with ESS interests. The materials contained in this article are by no way meant to cover every possible situations, doing so will be beyond the scope of such exercise. Where applicable, readers are encouraged to seek independent professional advice that applies to their own situation.