The federal government has finally reintroduced tax breaks for employee share schemes, drawing wide praise from Australia's start-up community.

Prime Minister Tony Abbott announced on Wednesday that the government would reverse rules Labor introduced in 2009 requiring employee share options to be taxed at the time they were given to their employees.

Under the new rules employees would no longer be required to pay tax on share options until they are exercised. As an additional concession aimed at start-ups, employees in companies no older than 10 with annual turnover less than $50 million would no longer be subject to up-front tax on discounted shares.

Dominic Woolrych, legal product manager at online start-up Lawpath, said the changes would have an overwhelmingly positive impact on Australia's start-ups.

Industry lobbyists have long argued that the 2009 tax rules made it hard for cash-strapped start-ups to secure talent, and had driven skills overseas.

The new rules would allow them to offer a portion of their businesses to employees and thereby encourage them to stay in Australia.

"We see over and over the technical talent heading overseas to the larger companies. You just can't match the salaries that they're demanding. What these new rules will do is allow you to pay them in equity rather than capital," Mr Woolrych said.

Nick Abrahams, technology investor and partner at law firm Norton Rose Fulbright, said that the rules would free start-ups from the cost burden of having to establish synthetic options schemes that had allowed employers to work around the existing rules.

The new employee share option scheme (ESOP) rules would also make it much easier for multinationals to establish operations here, he said.

"Traditionally, we've had to do a lot of work with their options plans to make them work in Australia and now we don't have to," Mr Abrahams said.

The federal government's approach was not without its wrinkles, he said.

Employees share options would still be taxed as income rather than at the lower capital gain rate in synthetic options plans. That, he said, might encourage some companies to continue using synthetic schemes.

Mr Woolrych also had some minor concerns with the new rules. He said it would have been preferable if employees became liable for tax on options at the time they were sold rather than their date of exercise.

However, he said that "in the larger scheme of things I don't think it's one we can really shout about".