14 October 2014

Encouraging employee share ownership and entrepreneurship

Note

Joint media release with
The Hon. Tony Abbott MP
Prime Minister and
the Hon. Joe Hockey MP
Treasurer

The Government will reform the tax treatment of Employee Share Schemes to bolster entrepreneurship in Australia and support innovative start-up companies.

Employee Share Schemes give employees a financial share of the company’s potential success. As such, they help start-up companies to attract and retain high-quality staff.

Changes to the tax treatment of Employee Share Schemes that were introduced by the former Government in 2009 have effectively brought to a halt the use of such schemes for start-up companies in Australia.

The Government will unwind these changes.

To begin with, the Government will reverse the changes made in 2009 to the taxing point for options.

This change will apply to all companies and will mean that discounted options are generally taxed when they are exercised (converted to shares), rather than when the employee receives the options.

Further, the Government will allow Employee Share Scheme options or shares that are provided at a small discount by eligible start-up companies to not be subject to up-front taxation, so long as the shares or options are held by the employee for at least three years.  Options under certain conditions will have taxation deferred until sale. Shares (issued at a small discount) will have that discount exempt from tax.

Criteria to define eligibility for this concessional treatment will include the company having aggregate turnover of not more than $50 million, it being unlisted and being incorporated for less than 10 years.

Furthermore, to give start-ups more time to be competitive and succeed, the Government will extend the maximum time for tax deferral from seven years to 15 years.

The Government will also update the ‘safe harbour’ valuation tables, which are used by companies to value their options, so they reflect current market conditions. The integrity provisions introduced in 2009 and the $1,000 up-front tax concession for employees who earn less than $180,000 per year will be retained.

This initiative is estimated to cost around $200 million over four years.

The Treasurer will consult with industry to ensure that the draft legislation delivers the intended outcome, with the legislation proposed to come into effect on 1 July 2015.