What is the start-up concession for employee share schemes in Australia?

The start-up concession under s 83A-45 of the Income Tax Assessment Act 1997 (Cth) is one of the most valuable features of the Australian employee share scheme tax regime for early-stage companies. Under the concession, if a qualifying company grants options (or shares) to an employee at or above the market value of the underlying shares at the time of grant, the employee is not subject to income tax on any discount at grant, at exercise, or at any deferred taxing point. Instead, when the employee sells the shares acquired on exercise, any gain is treated as a capital gain — which attracts the 50% CGT discount under Div 115 of the ITAA 1997 if the employee is an individual who has held the option or shares for at least 12 months. To qualify, the company must (at the time of grant) be unlisted, have an aggregated annual turnover of less than $50 million, be incorporated as an Australian resident company, and have been incorporated for less than 10 years. This concession is designed to support Australian startup growth and has made ESOPs significantly more attractive for both employees and founders since its introduction.

Does a company need a disclosure document to offer options to employees under its ESOP in Australia?

Generally, no — provided the offer qualifies for relief under ASIC's regulatory instruments. The Corporations Act 2001 (Cth) Part 7.12 would otherwise require a prospectus or other disclosure document for an offer of financial products (including options). However, ASIC has granted relief from these requirements for eligible employee incentive scheme offers through the ASIC Corporations (Employee Incentive Schemes) Instrument 2022/400 (which replaced the earlier ASIC Class Order CO 14/1000). Under this instrument, an Australian company may offer options to its employees without a disclosure document if the offer meets the conditions of the instrument, including that the offer is made to current employees, directors, or contractors of the company or its subsidiaries, and that the total number of shares that may be issued under the offer (together with other similar offers in the preceding 12 months) does not exceed 20% of the company's issued capital. Companies should obtain legal advice to confirm their eligibility for this relief before proceeding.

What are the ATO reporting obligations for a company that grants employee share options in Australia?

Companies that grant options or other interests under an employee share scheme (ESS) in Australia have two key annual reporting obligations to the Australian Taxation Office (ATO). First, the company must lodge an ESS Annual Report with the ATO by 14 August each year, disclosing details of all ESS interests granted, forfeited, and exercised during the preceding financial year (1 July to 30 June). This obligation arises under s 392-25 of Schedule 1 to the Taxation Administration Act 1953 (Cth). Second, for each employee who received ESS interests during the year, the company must provide an ESS statement to that employee by 14 July. The ESS statement sets out the details the employee needs to include in their personal income tax return, including the taxable discount (if any) brought to account in that financial year. The ATO provides an online ESS reporting portal for lodgment. Failure to lodge the annual report or provide employee statements on time can result in penalties under the Taxation Administration Act 1953 (Cth).

What is the difference between a tax-deferred ESOP and a tax-exempt ESOP in Australia?

Under Division 83A of the Income Tax Assessment Act 1997 (Cth), options granted under an employee share scheme may receive different tax treatment depending on the nature of the plan. Under a tax-deferred ESS (governed by Subdiv 83A-C), the taxable discount on the option is not assessed to the employee at the time of grant. Instead, the discount is deferred and becomes taxable at the 'deferred taxing point' — which is generally the earliest of: the time the employee exercises the option and the resulting shares are no longer subject to a genuine risk of forfeiture; the time the employee ceases employment; or 15 years after grant. Under the $1,000 tax-exempt ESS concession (s 83A-35), if the employee receives ESS interests with a total market value discount of $1,000 or less during a financial year, and the employee's annual income is below $180,000, the discount may be entirely exempt from income tax in the year of grant. The start-up concession (s 83A-45) is a third and more favourable option for qualifying companies, converting the discount to a capital gain on disposal.

What happens to unvested options if the company is sold or lists on the ASX?

The treatment of unvested options on a change of control (such as a trade sale or ASX listing) depends on what is provided for in the ESOP agreement and the company's ESOP rules. In many Australian startup ESOPs, it is standard to include a 'single trigger' acceleration provision, which causes all unvested options to vest in full immediately before the completion of a change of control. This ensures that employees can participate in the economic upside of the exit event that their work has helped create. Some ESOPs include a 'double trigger' acceleration mechanism instead, where unvested options only accelerate if (a) there is a change of control and (b) the employee's employment is terminated (other than for cause) within a specified period after the change of control (commonly 12 months). Investors and acquirers will sometimes negotiate against single-trigger acceleration because it can increase the cost of the transaction. Founders and employees typically prefer single-trigger acceleration. The ESOP agreement should clearly specify which mechanism applies, as this is one of the most commercially significant provisions in any ESOP.

Employee Share Option Plan Agreement (Australia)

Employee Share Option Plan Agreement (ESOP)

EMPLOYEE SHARE OPTION PLAN AGREEMENT

[Plan Type]

THIS EMPLOYEE SHARE OPTION PLAN AGREEMENT (the "Agreement") is made on [Grant Date] between:

(1) [Company Name] (ACN [ACN]) (ABN [ABN]), whose registered office is at [Company Address], [Company City], [Company Postcode] (the "Company"); and

(2) [Holder Name] of [Holder Address], [Holder City], [Holder Postcode], employed as [Holder Role] (the "Option Holder").

The Company and the Option Holder are together referred to as the "Parties".

BACKGROUND

A. The Company operates an Employee Share Option Plan (the "Plan") under which eligible employees and officers may be granted options to acquire shares in the Company.

B. The Company wishes to grant to the Option Holder an option to subscribe for ordinary shares in the capital of the Company, on the terms and conditions set out in this Agreement.

C. This Agreement is governed by the Corporations Act 2001 (Cth) Part 7.12, the Income Tax Assessment Act 1997 Division 83A (Employee Share Schemes), the ASIC Corporations (Employee Incentive Schemes) Instrument 2022/400, and the applicable laws of [Governing State].

1. DEFINITIONS

In this Agreement:

"ASIC" means the Australian Securities and Investments Commission.

"ATO" means the Australian Taxation Office.

"Board" means the board of directors of the Company from time to time.

"Corporations Act" means the Corporations Act 2001 (Cth), as amended from time to time.

"Date of Grant" means [Grant Date].

"ESS" or "Employee Share Scheme" has the meaning given in s 83A-10 of the Income Tax Assessment Act 1997 (Cth).

"Exercise Notice" means a written notice given by the Option Holder to the Company specifying the number of Option Shares in respect of which the Option Holder wishes to exercise the Option.

"Exercise Price" means AUD $[Exercise Price] per Option Share.

"Good Leaver" means the cessation of the Option Holder's employment or engagement with the Company (or a Related Body Corporate) by reason of [Good Leaver Definition].

"ITAA 1997" means the Income Tax Assessment Act 1997 (Cth).

"Market Value" means the fair market value per [Share Class] at the Date of Grant, as determined by the Board in good faith, being AUD $[Market Value At Grant] per share.

"Option" means the right to subscribe for the Option Shares at the Exercise Price on the terms of this Agreement.

"Option Shares" means [Number Of Shares] [Share Class] in the capital of the Company.

"Vesting Commencement Date" means [Vesting Start Date].

2. GRANT OF OPTION

Subject to the terms of this Agreement, the Company grants to the Option Holder, with effect from the Date of Grant, the right to subscribe for [Number Of Shares] [Share Class] in the capital of the Company at the Exercise Price of AUD $[Exercise Price] per share.

The Option is granted under the [Plan Type] and subject to the provisions of Division 83A of the ITAA 1997 and the ASIC Corporations (Employee Incentive Schemes) Instrument 2022/400.

The Board has determined that the Market Value of the [Share Class] at the Date of Grant is AUD $[Market Value At Grant] per share, based on a Board-approved valuation methodology. The Option Holder acknowledges this determination.

The Option Holder [Holder TFN Status]. The Company will include this grant in the ESS Annual Report lodged with the ATO by 14 August following the end of the financial year in which the grant was made, in accordance with Schedule 1 to the Taxation Administration Act 1953 (Cth).

3. VESTING SCHEDULE

Vesting Commencement Date: [Vesting Start Date].

Vesting ceases on cessation of employment or engagement with the Company and all Related Bodies Corporate, subject to the leaver provisions in Clause 5.

4. EXERCISE OF OPTION

The Option Holder may exercise the Option in whole or in part in respect of vested Option Shares at any time before the expiry of [Vesting Period Months] months from the Vesting Commencement Date (or such earlier date as results from the leaver provisions in Clause 5). The Option shall lapse if not exercised before the Exercise Period expires.

Method of Exercise: The Option Holder shall exercise the Option by delivering a duly completed Exercise Notice to the Company's registered office, accompanied by payment in cleared funds of the aggregate Exercise Price for all Option Shares to be subscribed. The Exercise Notice shall specify the number of Option Shares to be subscribed and the proposed exercise date.

Allotment: Subject to receipt of a valid Exercise Notice and full payment, the Company shall allot and issue the Option Shares to the Option Holder as soon as practicable and in any event within 15 business days of receipt of the Exercise Notice and payment. The Company shall lodge a Form 484 or Form 2205 return of allotment with ASIC within 28 days of allotment. The shares shall be allotted fully paid and rank pari passu with existing issued shares of the same class.

Restrictions on Dealing: The Option Holder must not deal in the Option Shares in contravention of the Company's securities trading policy or any applicable law, including the insider trading prohibitions in Part 7.10 of the Corporations Act.

5. CESSATION OF EMPLOYMENT — LEAVER PROVISIONS

Good Leaver: If the Option Holder ceases employment or engagement with the Company (and all Related Bodies Corporate) by reason of a Good Leaver event ([Good Leaver Definition]), vested Option Shares [Good Leaver Outcome]. The Board may, in its absolute discretion, determine that some or all unvested Option Shares vest on a Good Leaver departure.

Bad Leaver: If the Option Holder ceases employment or engagement for any reason other than a Good Leaver event (including voluntary resignation, termination for serious misconduct, or breach of obligations), all Option Shares (whether or not vested) shall [Bad Leaver Outcome]. The Company shall notify the Option Holder of their leaver classification in writing within 10 business days of cessation.

Statutory Entitlements: Nothing in this Agreement limits the Option Holder's statutory entitlements under the Fair Work Act 2009 (Cth) or any applicable industrial instrument.

6. TAX AND ATO REPORTING

This Option is granted under the [Plan Type]. The tax treatment of this Option is governed by Division 83A of the Income Tax Assessment Act 1997 (Cth). The Option Holder acknowledges that:

(a) Under a tax-deferred ESS, the discount on the option (if any) is generally taxed at the deferred taxing point (typically exercise or cessation of employment) rather than at grant;

(b) Under the start-up concession (s 83A-45 ITAA 1997), if the Company is a qualifying start-up at grant and the option is held for at least 12 months before exercise, the discount may be treated as a capital gain rather than income — attracting the 50% CGT discount under s 115-100 of the ITAA 1997 if the Option Holder is an individual;

(c) The Company will, as required by s 392-25 of Schedule 1 to the Taxation Administration Act 1953 (Cth), provide the Option Holder with an ESS statement by 14 July following the end of each relevant financial year, which the Option Holder must include in their income tax return;

(d) The Option Holder is solely responsible for their own tax obligations arising from the grant, vesting, exercise, and disposal of the Option Shares. The Company strongly recommends that the Option Holder obtain independent tax advice before exercising this Option.

7. NON-TRANSFERABILITY AND GENERAL

Non-Transferability: The Option is personal to the Option Holder and may not be transferred, assigned, charged, or otherwise dealt with without the prior written consent of the Board. Any purported transfer shall be void. The Option shall lapse immediately on the bankruptcy or insolvency of the Option Holder.

Adjustments: In the event of any bonus issue, rights issue, sub-division, consolidation, or reduction of the share capital of the Company, the Board may make such adjustments to the number of Option Shares and/or the Exercise Price as it considers fair and reasonable, subject to ASIC guidance.

Entire Agreement: This Agreement constitutes the entire agreement between the Parties relating to the grant of this Option and supersedes all prior discussions, negotiations, and representations.

Governing Law: This Agreement is governed by and shall be construed in accordance with the laws of [Governing State], Australia. Each Party irrevocably submits to the non-exclusive jurisdiction of the courts of [Governing State].

Corporations Act: The allotment of shares on exercise of the Option shall be subject to and in accordance with the Corporations Act 2001 (Cth) and the Constitution of the Company in force from time to time.

EXECUTION

IN WITNESS WHEREOF, the Parties have executed this Employee Share Option Plan Agreement as of the Date of Grant first written above.

Signed for and on behalf of {{companyName}} (ACN {{companyACN}})

________________

Signature

Date: ________________

Signed by the Option Holder: {{holderName}}

________________

Signature

Date: ________________

Maintained by Vladislav Sergienko, Founder·Template last modified: 2026-06-23·Report an error

What Is a Employee Share Option Plan Agreement (Australia)?

An Employee Share Option Plan Agreement in Australia records the issue or transfer of shares and the rights attaching to them, consistent with the share-capital provisions of the Corporations Act 2001 (Cth).

In Australia, ESOPs are regulated by a thorough framework of federal legislation and regulatory instruments. The primary income tax legislation is Division 83A of the Income Tax Assessment Act 1997 (Cth), which sets out the rules for when — and how much of — the discount on employee share scheme interests is included in the employee's assessable income. The Corporations Act 2001 (Cth) Part 7.12 governs the offer of financial products (including options) to employees, with ASIC providing disclosure relief through the ASIC Corporations (Employee Incentive Schemes) Instrument 2022/400. The ATO administers reporting obligations under Schedule 1 to the Taxation Administration Act 1953 (Cth).

For Australian startups, the most important feature of the ESOP tax regime is the start-up concession under s 83A-45 of the ITAA 1997. If a qualifying unlisted company grants options at or above market value, the employee is not taxed on any discount at grant or exercise — the gain is instead treated as a capital gain when the shares are sold, potentially attracting the 50% CGT discount. This makes properly structured ESOPs in qualifying start-up companies a highly tax-effective form of employee compensation.

An ESOP agreement governs the specific grant to an individual employee and should be read together with the company's ESOP rules, which set out the general framework applicable to all participants in the plan. The agreement specifies the number of shares under option, the exercise price, the vesting schedule, the exercise period, leaver provisions, and other key terms that determine the employee's rights under the plan.

The legal framework governing the Employee Share Option Plan Agreement (Australia) in Australia draws on several key statutes and regulatory bodies. Under the Corporations Act 2001 (Cth), the Australian Securities and Investments Commission (ASIC) regulates companies and financial services. Section 127 of the Corporations Act 2001 governs company execution of documents. The Australian Competition and Consumer Commission (ACCC) enforces the Competition and Consumer Act 2010 (Cth). The Australian Taxation Office (ATO) administers the Goods and Services Tax under the A New Tax System (Goods and Services Tax) Act 1999. The Federal Court of Australia and Supreme Courts of each state have jurisdiction over corporate disputes. Parties executing a Employee Share Option Plan Agreement (Australia) in Australia should confirm the document reflects current law, including any amendments enacted since the original drafting date. The Corporations Act 2001 (Cth) sets the foundational requirements.

When Do You Need a Employee Share Option Plan Agreement (Australia)?

An ESOP agreement is needed by Australian companies whenever they grant options to employees, directors, or eligible contractors as part of a formal employee incentive scheme. The following circumstances most commonly give rise to the need for an ESOP agreement.

Startup and early-stage companies: The most common use of ESOPs in Australia is by startups that cannot afford market-rate cash salaries but wish to attract talented employees by offering equity upside. An ESOP allows employees to share in the company's future growth — creating alignment between the interests of employees and those of the founders and investors. Australian startup investors (including venture capital firms and accelerators such as Startmate) generally expect to see an employee option pool of 10-20% of the fully diluted share capital established before their investment.

Retention of key personnel: Established companies use ESOPs to retain key executives and employees by giving them a financial stake in the company's future success. A well-structured vesting schedule (commonly four years with a one-year cliff in Australian practice) creates a strong retention incentive, as unvested options lapse if the employee leaves before the vesting date.

Compensation strategy: Companies that are cash-constrained (whether because they are pre-revenue or because their cash is needed for product development and growth) can use options to supplement or partially substitute for cash compensation, reducing the company's wage bill while still attracting high-quality staff.

Pre-exit preparation: Companies that are preparing for an exit (whether by trade sale, private equity buyout, or ASX listing) often use ESOPs to incentivise key management to stay through the exit process and contribute to maximising the exit price. The change of control acceleration mechanism confirms that management is rewarded for the value they have created.

ASIC and ATO compliance: An ESOP agreement is also required for Australian companies to comply with the ASIC disclosure relief conditions under the ASIC Corporations (Employee Incentive Schemes) Instrument 2022/400, and to satisfy the ATO's ESS reporting requirements under the Taxation Administration Act 1953 (Cth).

What to Include in Your Employee Share Option Plan Agreement (Australia)

A thorough Australian ESOP agreement should address the following key elements to be legally effective and commercially sound.

Plan Type and Tax Classification — The agreement should clearly identify the type of ESS under which the option is granted (tax-deferred, tax-exempt, start-up concession, or unapproved). This classification determines the tax treatment for the employee and the reporting obligations of the company. For start-up concession options, the agreement should note that the option is granted at or above the market value of the underlying shares at grant, as determined by the Board.

Exercise Price — The exercise price must be clearly stated in AUD. For start-up concession eligibility under s 83A-45 of the ITAA 1997, the exercise price must be at least the market value of the shares at the date of grant. The Board's valuation methodology and conclusion should be documented.

Vesting Schedule — Australian ESOP agreements commonly use a four-year vesting period with a one-year cliff, following US startup practice. Under this structure, no options vest during the first year (the cliff); at the end of the first year, 25% of the options vest immediately; thereafter, the remaining 75% vest monthly over the following 36 months. The agreement should specify the vesting commencement date (typically the employee's start date or the grant date), the cliff period, and the total vesting period.

Exercise Period — The agreement must specify the period during which the option holder may exercise vested options. Options typically expire 7-10 years from the grant date (or earlier if the option holder ceases employment). Australian ESOPs commonly provide a post-termination exercise window of 30-90 days for bad leavers and 12 months for good leavers.

Leaver Provisions — The agreement should clearly distinguish between good leavers (typically: death, total and permanent disability, redundancy, or retirement) and bad leavers (resignation, termination for cause). Good leavers typically retain their vested options for a defined period, while bad leavers' options (vested and unvested) may lapse immediately or within a short window.

ATO Reporting — The company's obligation to lodge an ESS Annual Report with the ATO by 14 August each year and to provide each employee with an ESS statement by 14 July should be acknowledged in the agreement.

Non-Transferability — Options granted under an Australian ESOP must generally be non-transferable (personal to the option holder) to maintain eligibility for tax concessions under Div 83A of the ITAA 1997.

Additional compliance elements for a Employee Share Option Plan Agreement (Australia) used in Australia include: Under the Corporations Act 2001 (Cth), the Australian Securities and Investments Commission (ASIC) regulates companies and financial services. Section 127 of the Corporations Act 2001 governs company execution of documents. The Australian Competition and Consumer Commission (ACCC) enforces the Competition and Consumer Act 2010 (Cth). The Australian Taxation Office (ATO) administers the Goods and Services Tax under the A New Tax System (Goods and Services Tax) Act 1999. The Federal Court of Australia and Supreme Courts of each state have jurisdiction over corporate disputes. Forms-legal.com provides this template as a starting point for Australia-compliant documentation.

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@misc{formslegal-employee-share-option-plan-agreement-australia,
  author       = {{Forms Legal}},
  title        = {Employee Share Option Plan Agreement (Australia) (Australia)},
  year         = {2026},
  howpublished = {\url{https://forms-legal.com/australia/business/corporate/employee-share-option-plan-agreement-australia}},
  note         = {Free legal document template. Based on Corporations Act 2001 (Cth)}
}

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