The federal government has finally reintroduced tax breaks for
employee share schemes, drawing wide praise from Australia's
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
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
"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
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
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
However, he said that "in the larger scheme of things I
don't think it's one we can really shout about".
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The income tax treatment of any property lease incentive will vary, depending on the nature of the inducement provided.
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