Australian startups get employee share scheme review

The Australian government has commenced a review into employee share schemes on the back of concerns that the tax arrangements in Australia are deterring startups from staying local.
Written by Josh Taylor, Contributor

The Australian government is looking to make it easier for startups to offer an employee share scheme as part of a move to make Australia a more attractive place for startups.

In a statement published on the Treasury website yesterday, the government said it would commence consultations with stakeholders from January 28 for two weeks in Sydney and Melbourne on the matter of the existing employee share scheme and how it can be improved.

In 2009, the then-Labor government changed the way employee share schemes were taxed in a bid to crack down on the higher-paid employees seeking to avoid taxation on their income by switching income into shares. Under the old system, employees could defer paying tax on the shares for up to 10 years, but the 2009 change meant the tax would need to be paid on receipt of the shares.

The change was felt by the startup sector in Australia, which often substitutes higher salaries for its ground floor employees with shares that would pay off if the company becomes successful.

Prior to the 2013 election, the Coalition vowed to change the taxation of the share scheme, with Treasurer Joe Hockey saying that the changes had led to a "massive handbrake on startups in Australia".

The last Labor government had indicated that it was also intending to review the scheme in June last year, but the review stalled when former Prime Minister Kevin Rudd returned to the leadership position prior to the September election.

The review will examine the 2009 changes for existing startups, as well as other barriers for startups to offer employee share schemes.

Communications Minister Malcolm Turnbull indicated last week that he was keen to see this review go ahead, at the same time downplaying Australian startup Atlassian's decision to relocate to the United Kingdom for better taxation treatment than it gets in Australia.

The comments came as the minister was in the United States visiting a number of tech giants, government agencies, and tech startups.

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