I have previously lamented how Australia’s tax settings discourage entrepreneurs from starting-up new companies and stifles innovation.
One of the barriers is Australia’s ludicrous treatment of shares/options received under an employee share scheme, which effectively creates an upfront tax charge where the value often cannot be realised (or shares sold), discouraging the development of start-up companies in the process.
Such rules were brought in by the former Rudd Labor Government in 2009, replacing the system whereby employees could defer the tax on shares or rights for up to 10 years. Today, The AFR has revealed that the Abbott Government will will revoke Labor’s scheme and replace it with elements of the UK’s Sharesave scheme, which taxes workers’ shares only once they are sold:
To limit the cost to the federal budget and target start-ups and small to medium businesses, the new scheme could include eligibility rules, including taxpayer income and employer size, but will not have the punitive tax impact of the arrangements now.
The Abbott government will announce new tax rules as part of its landmark National Industry Investment and Competitiveness Agenda, which will also include new arrangements for research and development and the commercialisation of new products from public institutions as well as the private sector…
Deloitte has recommended the scheme be limited to firms with less than $15 million turnover and for staff earning under $180,000 a year…
Opposition Leader Bill Shorten has agreed the previous government changes to the regime had created a “drag on innovation” and signalled Labor would support a relaxation of the tax rules.
This is good policy by the Coalition, and recognises that start-ups often cannot pay employees salaries upfront and must instead offer equity. Start-ups, by their very nature, are also speculative, so it is unfair to charge tax on the face value of stock or options when the value may never be realised. Upfront taxation also reduces companies’ ability to attract and retain staff.
Let’s hope the Senate supports the measure.
