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Employee Share Schemes and Startups

21 January 2014 | Invitation to Comment

Consultation Update - October 2014

16 October 2014

Release of the Industry Innovation and Competitiveness Agenda

On 14 October 2014, the Government released the Industry Innovation and Competitiveness Agenda. As part of this response, the Government announced that it will reform the tax treatment of Employee Share Schemes to bolster entrepreneurship in Australia and support innovative start-up companies.

The Government will reverse the changes made in 2009 to the taxing point for options.

This change will apply to all companies and will mean that discounted options are generally taxed when they are exercised (converted to shares), rather than when the employee receives the options.

Further, the Government will allow Employee Share Scheme options or shares that are provided at a small discount by eligible start-up companies to not be subject to up-front taxation, so long as the shares or options are held by the employee for at least three years. Options under certain conditions will have taxation deferred until sale. Shares (issued at a small discount) will have that discount exempt from tax.

The Treasury will consult with industry to ensure that the draft legislation delivers the intended outcome, with the legislation intended to come into effect for shares or options provided from 1 July 2015.

Further details on these amendments, including the eligibility criteria, are available in the ESS fact sheet.

Consultation Update - May 2014

23 May 2014

Issues raised in submissions to this consultation process are being considered within the context of the Prime Minister’s Taskforce established to develop a National Industry Investment and Competitiveness Agenda, which is due to make recommendations to the Government by mid 2014. Information about the Taskforce is provided in the Prime Minister's media release dated 18 December 2013.

Initial Consultation - January 2014

21 January 2014

The Government is committed to addressing the concerns that have been raised by startups in relation to Employee Share Schemes.

The Government will commence direct consultations with interested stakeholders for two weeks commencing 28 January 2014. Consultations will be conducted in Melbourne and Sydney, with the option to hold teleconferences with those otherwise unable to attend.

These consultations will provide stakeholders with an opportunity to discuss their concerns in relation to the existing Employee Share Scheme arrangements for startups. While previous consultations have been undertaken, these discussions will focus on:

  1. the 2009 changes and their effects on businesses
    • If you were a startup prior to 2009-10, did you change your ESS arrangements following the 2009-10 Budget changes? If so, how?
    • What were the compliance impacts on your business of the new withholding and reporting requirements introduced in 2009-10?
    • Are there other impacts on your business from the changes in 2009-10?
  2. what are the barriers to offering an employee share scheme?
    • If you are a startup, do you offer shares or options through an ESS to your employees? What other benefits do you offer your employees? Are these sufficient to retain or attract the necessary employees? If you do not offer an ESS, what are the major reasons why not?
  3. what steps should be implemented to overcome these barriers?
  4. what would be the broader economic benefits in implementing these steps?
  5. what is a startup?
    • What are the key characteristics of the type of startup that is most likely to make use of an ESS?
  6. any other costs or issues associated with the implementation of an employee share scheme
    • What difficulties and costs do startups face in valuing shares or options for an ESS?
    • If you are a startup, do you use an independent valuation? Why?
    • As a startup, how often do you carry out valuations for ESS purposes?
    • Do you require a valuation of your startup for other purposes? What type/s do you use?
    • What difficulties do startups face with respect to corporate regulation of ESS?
    • Are there other regulatory requirements that impose costs or difficulties for startups wanting to offer an ESS?

Submissions closed on Friday 7 February 2014

Ref ID: {761D2B64-553D-48F6-AB0A-E2B300138103}
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