Changes to the tax treatment of the schemes were introduced by the Labor government in 2009, which the Coalition claims “effectively brought to a halt the use of such schemes for start-up companies in Australia”.
Bruce Billson, minister for small business has announced the government will now unwuind these changes in an attempt to boost entrepreneurship in Australia and support innovative start-up companies.
“To begin with, the government will reverse the changes made in 2009 to the taxing point for options,” he said.
“This change will apply to all companies and will mean that discounted options are generally taxed when they are exercised (converted to shares), rather than when the employee receives the options.”
“Further, the government will allow Employee Share Scheme options or shares that are provided at a small discount by eligible start-up companies to not be subject to up-front taxation, so long as the shares or options are held by the employee for at least three years. Options under certain conditions will have taxation deferred until sale. Shares (issued at a small discount) will have that discount exempt from tax.”
The government has stated that to be eligible for this concessional treatment a company must have aggregate turnover of not more than $50 million, must be unlisted and have been incorporated for less than 10 years.
Furthermore, to give start-ups more time to be competitive and succeed, the government will extend the maximum time for tax deferral from seven years to 15 years.
Mr Billson said the government will also update the ‘safe harbour’ valuation tables, which are used by companies to value their options, so they reflect current market conditions.
This initiative is estimated to cost around $200 million over four years with the legislation proposed to come into effect on 1 July 2015.