Australia’s Startup Community is Growing (see Spacecubed in Perth) But More Can be Done to Help
You may have seen in the financial media recently the calls for changes to the taxation of employee share schemes.
Ever since the rules were changed back in 2009, businesses looking for tax effective ways to incentivise employees have had limited real options, especially where cash is in limited supply.
Current Employee Share Scheme Rules
While shares can still be issued to employees as a form of remuneration and/or to give them a vested interest in the business, the taxation of such schemes has two major flaws –
i) Either the value of the shares is immediately taxable to the employee, meaning they have an immediate tax bill, but no cash to pay it, or
ii) The shares are not fully owned by the employee or are otherwise at risk of forfeiture (meaning the intended incentive often doesn’t materialise).
Calls for Reform
Many argue the rules have had an impact on Australian businesses as it has stymied innovation and worse, led to a talent drain as many of the brightest minds head overseas to join companies that can offer real employee share schemes without the negative taxation consequences (most specifically Silicon Valley).
However as Australia experiences a growing Startup community, calls for a review of the tax rules have lead to a Treasury Review with submissions having closed this Friday.
With luck we may see an announcement in this year’s Federal Budget (to be handed down in May) that will help improve this area of the law and open some real opportunities for those looking to build a strong team.
What to do in the Mean Time
If you are an employee who has been offered shares under such a scheme, or you have been offered a job where one of the remuneration components is an employee share scheme, we recommend you get in touch so that we can review the terms of the scheme with you and ensure you fully understand how you own the shares and the tax implications.
Equally, if you are a growing business that is looking for ways to incentivise staff but have tight cash flow, we can talk you through your options.
You can find our contact details here.