CW 26CMeaning of exempt ESS

1. Exempt ESS means—

2. a scheme that had the Commissioner’s approval under section DC 12 (Loans to employees under share purchase schemes) before that section’s repeal by the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018:
3. an arrangement of which the Commissioner has been notified under section 63B(1) of the Tax Administration Act 1994, if—
   1. the arrangement meets the criteria in subsections (2) to (9) of this section; and
   2. the Commissioner has received all forms due under section 63B(2) and (3) of the Tax Administration Act 1994.

4. The arrangement must provide that—

5. the shares are available for no more than their market value at the date of purchase or subscription; and
6. the market value of the shares purchased or subscribed for by an employee, or a trustee for an employee, under the arrangement is less than or equal to $7,500 in a year; and
7. the difference between the market value of the shares purchased or subscribed for by an employee or a trustee and the amount that an employee spends on buying shares under the arrangement is less than or equal to $3,000 in a year.

8. The arrangement must provide that—

9. a full-time permanent employee to whom an offer under the arrangement is made is eligible to participate in the arrangement, on an equal basis with 90% or more of other full-time permanent employees to whom an offer under the arrangement is not subject to foreign security disclosure rules; and
10. if it applies to part-time employees, those employees to whom an offer under the arrangement is made are eligible to participate in the arrangement, on an equal basis with 90% or more of other part-time employees to whom an offer under the arrangement is not subject to foreign security disclosure rules; and
11. if it applies to seasonal workers, those employees to whom an offer under the arrangement is made are eligible to participate in the arrangement, on an equal basis with 90% or more of other seasonal workers to whom an offer under the arrangement is not subject to foreign security disclosure rules; and
12. if it requires that an employee spend a minimum amount on buying shares, it requires no more than $1,000 to be spent in a year; and
13. if it requires that an employee must have a minimum period of employment or service before the employee is eligible to participate, it requires—
    1. no more than 3 years full-time work, for full-time employees; and
    2. no more than an accumulated period that is the equivalent of 3 years full-time work, for other employees.

14. If a trust holds the shares in trust for the employee, the arrangement must provide that—

15. the trustee pays dividends directly to the employee; and
16. the dividends are treated as being derived by the employee.

17. The arrangement must provide that—

18. if it requires that an employee must buy the shares for more than nominal consideration,—
    1. a loan for the cost of the shares is available to the employee; or
    2. the employee may pay for or buy the shares in regular instalments of a month or less, and any regular instalments are subject to paragraph (d)(ii); and
19. any loan to an employee to buy shares is free of interest and other charges; and
20. any loan or regular instalments have a maximum term of 60 months and a minimum term of 36 months; and
21. any loan to an employee to buy shares is repayable by regular instalments of a month or less, but—
    1. the loan is repayable early in full or in part at the employee’s discretion; and
    2. in the case of an employee who is on unpaid or parental leave for more than a month, the regular instalments are suspended while on leave and the term of the loan is extended as appropriate.

22. The arrangement must provide, in the case of serious hardship that results or may result from an employee’s continued participation in the exempt ESS, that, with the employee’s agreement,—

23. any regular instalments and any other terms related to payment by the employee may be varied; or
24. the employee may withdraw from the arrangement, and any shares are bought from the employee for their market value on the day of withdrawal, subject to the repayment of any outstanding loan.

25. The arrangement must provide that the employee may withdraw from the arrangement on giving 1 month’s notice to the relevant party. Any shares must be bought from the employee for the lesser of their market value on the day of withdrawal and their cost to the employee, subject to the repayment of any outstanding loan.

26. The arrangement must provide that,—

27. if the employee has not acquired the shares for market value, there is a period of restriction during which the shares must not be disposed of other than as part of a takeover or similar share reorganisation, and that period of restriction is the shorter of—
    1. a period of 3 years starting on the date the employee acquired the shares, or the period of repayment of a loan made to them under the scheme for this purpose, whichever is longer; and
    2. a period starting on the date the employee acquired the shares and ending on the date the employee ends their employment with the company that employs them, or a company in the same group of companies if the employee is transferred; or
28. if the employee has acquired the shares for market value, there is a period of restriction during which the shares must not be disposed of other than as part of a takeover or similar share reorganisation, and that period of restriction is no longer than the shorter of—
    1. the shortest period in paragraph (a)(i) and (ii); and
    2. any period of restriction provided by the arrangement, if that period finishes on or after the date on which the employee has no further repayment obligations for a loan made to them under the scheme.

29. The arrangement may provide, when the period of restriction provided by subsection (7) ends, that the shares are transferred to the employee if they have not already been transferred or, if the employee chooses, that the shares are acquired from the employee or trustee for the lesser of—

30. the cost of the shares to the employee:
31. the market value of the shares on the date the period of restriction ends.

32. If the arrangement does not provide as described in subsection (8), the arrangement must provide, when the period of restriction provided by subsection (7) ends,—

33. in the case that the employee is currently employed, that the shares are transferred to the employee if they have not already been transferred or, if the employee chooses, that the shares are acquired from the employee or trustee for the lesser of—
    1. the cost of the shares to the employee:
    2. the market value of the shares on the date the period of restriction ends:
34. in the case that the employee is not currently employed, that the shares are acquired from the employee or trustee for the lesser of—
    1. the cost of the shares to the employee:
    2. the market value of the shares on the date the period of restriction ends.

35. Despite subsections (8) and (8B), when a period of restriction ends because the employee’s employment ends through their death, accident, sickness, redundancy, or retirement at normal retiring age, the arrangement must provide that—

36. the shares are transferred to the former employee if they have not already been transferred, or transferred to the legal representative of the employee’s estate, as appropriate; or
37. if the employee chooses, the shares are purchased for the lesser of—
    1. the cost of the shares to the employee:
    2. the market value of the shares on the date the period of restriction ends.