Government responds to calls for changes to employee share scheme

The federal government is aware of the difficult position Australia’s current employee share scheme laws places Australian startups.

Reform of those laws could lead to a $1.4 billion boost to the economy, a report released yesterday by Employee Ownership Australia and New Zealand found.

A Treasury spokesperson told StartupSmart “Australian startups play an important role in the encouragement of entrepreneurialism and the development of a strong, innovative economy”.

“In consultations conducted jointly by Treasury, and the Industry and Communications departments in January and February 2014, the startup community argued that the current up-front taxation arrangements for employee share schemes (or ESSs), putting start-ups at a disadvantage in attracting and retaining the staff they need,” the spokesperson says.

“They note that this tax treatment is particularly harsh on startups which tend to be unlisted, meaning that it is more difficult for employees to sell shares to pay the tax.

“Further, startups note that the interests acquired may ultimately be worthless, as most startups fail.

“They consider that it therefore appropriate to defer taxation until some value is actually crystallised.

“The government is aware of the concerns that have been expressed in the consultation process.”

The spokesperson was unable to provide an exact date for when the prime minister’s taskforce, established to develop a National Industry Investment and Competiveness Agenda, which is examining the issue, will make its recommendations to government.

“The taskforce will report later in the year and comprises the prime minister (as chair), the treasurer, the minister for industry and the minister for trade and investment.”