Employee share scheme legislation jumps latest hurdle, hopes bill will pass Senate in next two weeks

The federal government’s latest amendments to its employee share scheme legislation have cleared their first parliamentary hurdle, after being passed by the House of Representatives on Wednesday.

The bill, which the government hopes will pass the Senate in the next two weeks, means share options will no longer be taxed when they are provided to the employee. Instead share options will be taxed when the option is converted to a share, and becomes something of actual value.

Under the current law employees were required to pay income tax at the time they received those shares or options, regardless of whether or not they received any financial benefit from the shares.

The proposed legislation, while not perfect, has been welcomed by the startup sector.

The chief executive of the Australian Private Equity and Venture Capital Association, Yasser El-Ansary, described the current law as a “major handbrake” on Australia’s startup ecosystem since it was introduced by Labor six years ago. Employee share schemes are an important tool for startups looking to recruit talent, but which can’t offer the big salaries available in the corporate world.

Minister for Small Business Bruce Billson says the amendments will help stimulate the growth of high technology startups in Australia.

“We’ve had to repair the damage that Labor did to employee share schemes,” he says.

“It’s all about bringing this additional tool to the table to support high growth startups. It’s over at the Senate now, and we’re keen to see it passed through the Senate without obstruction. Even Labor recognised that the changes they made in 2009 was an unwise and unhelpful move.”

The bill passed through the House of Representatives with the support of Labor, which says it will task its recently announced Treasurer’s Entrepreneurial Council with responsibility to monitor the scheme’s implementation, and recommend any required improvements.

The shadow parliamentary secretary to the shadow treasurer, Ed Husic, said in a statement supporting the changes is part of Labor’s long-term plan to make Australia a leader in innovation and entrepreneurship.

“The changes introduced today go some way towards supporting startups in their growth phase,” Husic says.

“But they need to be closely monitored to make sure they are doing enough to help Australian innovators achieve their potential.”

Employee share scheme changes

• Employees issued with options under employee share schemes will generally be able to defer tax until they exercise those options.
• The maximum time of tax deferral will be increased from seven years to 15 years.
• Increases the maximum individual share ownership limit for those wanting to access a employee share scheme tax concession from 5% to 10%.
• Employees of startups can receive options or shares at a small discount. If they hold the shares or options for at least three years, they will not be subject to up-front taxation.
• To qualify for the concession, companies must have been incorporated for less than 10 years, be unlisted and have a turnover of no more than $50 million per year.

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