Startup industry backs employee share scheme changes

Australian startup advocacy group StartupAUS has welcomed the government's moves to amend the country's employee share scheme in a bid for startup employees to reap greater benefits from their financial interests in early stage companies.
Written by Leon Spencer, Contributor

Peter Bradd, director of Australian technology startup advocacy group StartupAUS, has welcomed proposed changes to the country's employee share scheme, introduced in parliament this week by Minister for Small Business Bruce Bilson.

An employee share scheme (ESS) is a system under which shares, stapled securities in a company, or rights to acquire them, are provided to an employee. It is often used to reward employees of startups and early stage companies in exchange for reduced salaries as an organisation works to establish itself commercially.

The proposed Tax and Superannuation Laws Amendment (Employee Share Schemes) Bill 2015, which was introduced in the House of Representatives on Wednesday, would see employees of startups reap greater benefits from the options they may possess in the companies by which they are employed.

The legislation proposes two main changes to the tax treatment of ESSes. For all companies, employees who are issued with options will be able to defer tax until they exercise the options, rather than having to pay tax when those options vest.

Eligible startups will also be able to issue options or shares to their employees at a small discount. In the case of shares, that discount would be exempt; for options, it would be further deferred from income tax.

"The Bill improves and streamlines the taxation of employee share schemes," said Bilson on Wednesday. "It removes key impediments introduced by the former Labor government and creates a new startup incentive to restore and rebuild employee share schemes.

"The amendments will help stimulate the growth of high technology startups in Australia by making Australia a more attractive destination for innovative companies seeking to commercialise their ideas domestically," he said.

Bradd not only welcomed the proposed Bill, but also Bilson's announcement of the government's intention to help attract and retain talent for innovative companies.

"It is encouraging to see the government recognise the potential of Australian tech startups, and take steps to rectify the tax treatment of share schemes," said Bradd. "Changes to the ESS will help Australian startups become strong drivers of increases in job creation and, because many help to drive technological change, this will lead to productivity gains and job creation for our economy.

"As a nation, we need to invest and foster our startup ecosystem. Australian startups are key in shifting to our industry base from an extractive economy to a sustainable, knowledge-led economy. Changes to the ESS are a vital step in this long process," he said.

Bradd's enthusiasm for the government's proposed ESS changes stands in stark contrast with his condemnation of the government's move last year to scrap eight programs aimed at supporting startups, along with local innovation and commercialisation, in a bid to save a projected AU$845.6 million over five years.

In May last year, the Federal Budget 2014-15, handed down by Treasurer Joe Hockey, foreshadowed the scrapping of Commercialisation Australia (CA), which had provided more than AU$200 million in funding to local startups, and the Innovation Investment Fund (IIF), which connected startups with venture capital.

At the time, Bradd said the Budget provided "more questions than answers" for Australian startups.

"If our leaders don't bring Australia in line with the rest of the world when it comes to fostering tech startups, we will continue to see many of our most successful startups have no choice but to move overseas," he said.

Editorial standards