Leading advisory firm, William Buck Victoria, has welcomed the Government’s proposed changes to Employee Share Schemes (ESS), saying they will significantly reduce cost and administrative burdens on business and better support start-up enterprises.
“These proposed changes are long overdue and will be warmly welcomed by the middle-market clients that we work with,” William Buck Victoria’s Director of Tax Advisory, Shane Crockett, said.
The proposed changes, announced as part of the Federal Government’s Industry Innovation and Competitiveness Agenda, includes reversing for all companies most of the changes made in 2009 to the taxing point for Options, while retaining the integrity provisions that were introduced at the time.
“The changes that were made five years ago unfortunately went too far, and have acted to stifle the ability of businesses to attract top talent,” Mr Crockett said.
“In fact, what we’ve seen in the past five years, is start-up businesses needing to establish other ESS arrangements that are costly and complex to develop and administer,” Mr Crockett said.
The proposed changes include:
– Eligible start-up businesses will be allowed to issue shares to employees at a small discount
and issue options under advantageous conditions;
– Shares and options that are issued by start-ups at a discount will no longer be subject to up-
front taxation, so long as they are held by the employee for at least three years;
– Shares and options issued by start-ups will only be taxed at the time the shares are sold which
means that employees only have to pay tax when they actually receive value;
– The maximum time for tax deferral will be extended from seven years from acquisition of
interests to 15 years, allowing more time for the start-up to succeed; and
– Employees in start-ups will have their gains on the Options and Shares taxed as a capital gain
and not income (thereby accessing lower effective tax rates).
“These changes will come at some cost to revenue, but this cost should be easily offset by the gains to be made in employment and the creation and growth of Australian businesses,” Mr Crockett said.
“Eligible start-up businesses will now be able to offer tax effective employee share options in the same way overseas start-ups are able to, which means Australian companies will stop losing good talent to Silicon Valley.”
“The new Employee Share Option Scheme rules should also make it easier for multinationals to establish operations in Australia as they should no longer need to amend their existing ESS plans for Australian purposes”.
“These changes are business friendly and they’re employee friendly, and we look forward to them being introduced,” Mr Crockett said
