The Government's review of the taxation of employee
share schemes for start-up companies is to be
The Government has announced that it is going to look at
changing the rules governing employee share schemes for start-up
Back in August 2013, the Labor Government started a similar
process and issued a Treasury discussion paper. With the election
and change of Government, the process was put on hold.
The new employee share plan tax rules which came into play in
2009 have created significant problems, particularly for start-ups.
Previously, the "discount" on share options was only
taxed when an option was exercised. The new rules accelerated the
taxing time to the point at which the options vest. This means that
if an employee is granted an option, that employee needs to include
the market value of the option in assessable income in the year
that it is granted, unless the option is subject to forfeiture. The
problem with this scenario is that the tax liability accrues even
though the employee hasn't realised any economic value for the
Employee options arrangements are fundamental in remuneration
structuring for start-ups, particularly in the technology sector.
Typically, these companies do not have the cash-flow to reward
employees by conventional salary or cash bonuses. The granting of
an option is a cost-effective way of attracting and incentivising
It may be that the Government will look to go even further than
changing the taxing point – addressing the need for a
simplified regulated scheme which can be implemented in a
cost-effective manner off the shelf without the need for complex
structuring and attendant legal and accounting costs.
The reactivation of the inquiry by the Coalition is commendable
and should result in a tax system without the competitive
disadvantage – in keeping with the Coalition's desire for
Australia to be "open for business".
Clayton Utz communications are intended to provide
commentary and general information. They should not be relied upon
as legal advice. Formal legal advice should be sought in particular
transactions or on matters of interest arising from this bulletin.
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Treasurer Scott Morrison recently announced changes to a number of 2016 Budget superannuation contribution measures.
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