Government to review employee share schemes

The Australian Government has taken its first steps towards fulfilling an election pledge to technology start-ups which may alter how employee share options are taxed.

Prior to last year’s federal election, the Coalition signalled a potential review into how the government taxes employee share schemes in response to lobbying by local technology start-ups that claimed the current rules were hindering innovation.

The current Employee Share Scheme taxes company shares given to employees when they receive them, rather than at vestment. The company is then required to foot their worker’s tax bill immediately, where previously they’d been able to defer the payments for up to 10 years.

The changes were implemented under the former ALP Government in 2009 in an attempt to stamp out high-paid workers aiming to reduce their tax by moving their income into shares. It announced it would review the scheme in mid-2014 but a policy change failed to materialise before the election.

Share options are an attractive proposition for start-up businesses, who use the schemes to lure workers in during the company’s infancy, while promising higher salaries as the company becomes more successful.

Communications minister Malcolm Turnbull late last year said the current rules were “very unsatisfactory” and were “absolutely a major disincentive to start-up businesses in Australia”. 

Late yesterday the federal Treasury published a notice to industry advising consultation on the existing Employee Share Scheme would start from next Tuesday, with interested parties able to provide submissions until February 7.

The consultations will inquire as to the effect of the regulations on business - both prior to and after the changes were implemented in 2009; the barriers to offering employee share schemes, including the costs involved; how to overcome the barriers and the resulting broader economic impact.

The Government will also seek to clarify the the types of start-ups most likely to make use of an Employee Share Scheme.