Equity compensation has taken centre stage in Australia’s evolving employment landscape. As more companies—especially in technology and fast-growth sectors—compete for top talent, offering employees a slice of the company pie through shares or options is becoming the new normal. But as the popularity of equity pay rises, so does the complexity, especially with 2025’s updated tax policies. Here’s what you need to know to maximise your benefits and avoid costly surprises.

What is Equity Compensation and Why is it Trending?

Equity compensation refers to non-cash pay that represents ownership in a company, such as shares (stock), share options, or performance rights. Instead of—or in addition to—a traditional salary, employees receive equity, aligning their interests with the company’s long-term success.

Stock Options: The right to buy company shares at a set price in the future.
Restricted Stock Units (RSUs): Shares granted after meeting certain conditions, such as tenure or performance.
Employee Share Schemes (ESS): Broader plans offering discounted or free shares to employees, often used by startups and scale-ups.

This form of compensation is attractive for both employers and employees. Employers can conserve cash and incentivise loyalty, while employees have the potential to share in the company’s growth—sometimes substantially. As Australia’s tech sector booms and startups mature, equity is becoming a standard part of the total remuneration package. According to the Tech Council of Australia, over 60% of high-growth tech companies now offer some form of equity compensation in 2025.

Key 2025 Policy Updates and Tax Implications

The 2025 financial year has brought important changes to how equity compensation is taxed in Australia, impacting both employees and employers. The federal government’s latest amendments to Employee Share Schemes (ESS) legislation, effective 1 July 2024, are designed to make equity more accessible while clarifying tax obligations.

Tax Deferral Rules: Employees receiving options or rights under eligible ESS plans can defer tax until the shares are sold, up to a cap of $50,000 per year (up from $30,000 in 2023).
Vesting and Tax Triggers: Tax is generally payable when the equity vests (becomes yours) or is sold, not when it’s initially granted—helping to avoid ‘dry tax’ issues where you owe tax but can’t sell the shares.
Capital Gains Tax (CGT): When you sell your shares, any increase in value is subject to CGT. Holding the shares for over 12 months can halve your CGT liability.
Reporting Requirements: ATO reporting for employers has been streamlined, but employees are still responsible for tracking and declaring ESS income and CGT events.

For example, if you’re granted $40,000 in RSUs in 2025 and they vest after two years, you won’t pay tax until they vest or you sell them. If the share price has doubled by then, you could face a significant tax bill—but also a substantial windfall. The increased deferral cap gives more breathing room for employees in high-growth companies, but it’s essential to plan for the eventual tax event.

Real-World Scenarios: Maximising Your Equity

Let’s consider two Australian employees in 2025:

Sophie, Tech Startup Engineer: Sophie receives 5,000 options at $2 each. The company lists on the ASX in 2026 and shares jump to $10. She exercises her options, paying $10,000, and sells immediately for $50,000. Sophie’s profit is $40,000, taxed as a capital gain. By holding the shares for over 12 months, she would qualify for the 50% CGT discount, reducing her tax bill.
James, ASX200 Corporate Manager: James receives $20,000 in RSUs each year. He defers tax until vesting, at which point the shares are worth $30,000. He pays income tax on the $30,000, but any additional gain when he sells later is taxed under CGT rules.

To get the most from your equity compensation:

Track vesting schedules and potential tax events.
Understand the liquidity of your shares—private company equity may be harder to sell.
Consider setting aside funds for tax, especially if you can’t sell shares immediately.
Seek tailored advice if you’re facing a complex vesting or exit scenario.

The Future of Equity Compensation in Australia

With the federal government’s clear push to foster innovation and support high-growth companies, equity compensation will only become more common. New fintech platforms are making it easier for both startups and established businesses to administer ESS plans, and employees are becoming savvier about negotiating equity as part of their total package.

However, the risks—illiquidity, share price volatility, and tax surprises—remain real. The 2025 policy changes have made the system more flexible, but a proactive approach to tracking, planning, and understanding your equity is critical to making the most of this powerful wealth-building tool.