The newly elected Australian Coalition Government has commenced direct consultations with interested stakeholders to review the taxation of employee share schemes for start-up companies, following significant public and political impetus for legal reform in this area. They have stated that they are committed to reforming this area of the law in order to assist start-up companies.
Early-stage companies that are looking to secure new talent and incentivise personnel will often offer shares or share options to employees, in place of high salaries, because cash can be in short supply. Under tax rules introduced by the former Government, employees may be taxed upfront on the grant or vesting of the share or option. This is despite the fact that there may be no existing market for the shares and no guarantee that the company will succeed. Start-up companies have been vocal in their demand for reform, arguing that upfront tax on employee shares and options is one of the biggest barriers to start-up success.
Recognising that “high tech start-ups are important for Australia to remain globally competitive”, the Government has invited submissions from industry to discuss concerns in relation to the existing employee share scheme arrangements for start-ups, with the aim of better supporting innovative and entrepreneurial Australian companies.
As corporate and taxation experts in the area of start-ups and employee share schemes, Richard Horton and Louise Boyce from Squire Sanders have met with Treasury to put forward proposals for how this area of law could be reformed. If you would like any advice on employee equity and remuneration issues please contact Louise Boyce.