There'll be changes to the taxation of employee
share option schemes from 1 July 2015, but no word yet on crowd
There are mixed messages for start-up companies in the Federal
Government's new "Industry Innovation And Competitiveness
The good news is that 1 July next year has been set as the start
date for new rules on taxing employee share and option schemes.
This is intended to encourage start-ups by making it easier to
attract talented employees.
On the other hand, any changes to how start-ups are to obtain
capital remain up in the air: the Government has apparently decided
not to implement CAMAC's crowd-sourced equity funding proposals
without further consultation.
Employee shares and option schemes
Employee options have traditionally been a popular way for
start-up companies to attract talented staff, without having to pay
them a high salary. A problem with employee option schemes in
Australia is that under the current rules employees may effectively
be required to pay tax on unrealised assets.
Until 2009, employees could elect to defer paying income tax on
the value of their options until the options were exercised.
However, from that year onwards, employees no longer have a choice,
and could potentially be taxed on any discount at the time the
options are granted or when they vest, subject to some limited
concessions for employees earning under less than $180,000 pa. This
means that employees could be required to find cash to pay tax on
the value of options that had not been realised. The result is that
the 2009 amendments to the tax rules effectively brought a halt to
the use of employee share schemes by start-up companies in
From 1 July 2015, the Government wants to change this, while
retaining the 2009 concessions. From that date, employees with
options may again be able to elect to defer tax until they exercise
those options. Employees earning less than $180,000 pa will still
be exempt from paying income tax on the first $1,000 of interests
that they receive.
In addition, the Government intends to legislate an additional
tax benefit for "eligible start-ups".
The criteria for an "eligible start-up" will include
having a turnover of no more than $50 million (not $50,000, as
reported in one newspaper), being unlisted and having been
incorporated for less than 10 years.
Where eligible start-ups offer shares and options to employees
at a small discount, that discount will be exempt from up-front
taxation, as long as the shares or options are held by the employee
for at least three years. The Government has also announced that
options under certain conditions will have taxation deferred until
sale, and that shares (issued at a small discount) will have that
discount exempt from tax. Furthermore, the Government wants to
extend the maximum time for tax deferral from seven years to 15
The Treasurer will consult with industry to ensure that any
draft legislation delivers the intended outcome, with the
legislation proposed to come into effect on 1 July 2015.
The "Industry Innovation And Competitiveness Agenda"
statement includes crowd-sourced equity funding, but does not
announce a start date for the implementation of CAMAC's
recommendations. Rather, the paper says that the Government
"will consult widely on a regulatory framework to facilitate
crowd sourced equity funding, building on CAMAC's
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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The income tax treatment of any property lease incentive will vary, depending on the nature of the inducement provided.
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