According to small business minister Bruce Billson, the draft legislation has been designed to increase the international competitiveness of our tax system and allow innovative Australian firms to attract and retain high quality employees in the globally competitive labour market.
“We have listened to enterprising Australians during extensive consultations, and we have heard time and time again that the current taxation regime for employee share schemes is uncompetitive and unattractive,” Mr Billson said.
In the past, options were taxed when they were provided to the employee, but this would now change, he said.
"There was no real way of determining their true values, which meant that employees were hit with a substantial tax liability, even though there was no material capacity to generate the resources to pay it,” Mr Billson said.
“Our amendments mean that the tax on the options is paid when there is an actual material value on the options.”
Under the draft legislation, the government will allow eligible start-up companies to issue shares or options to their employees at a small discount and will make that discount generally exempt from up-front taxation.
"To ensure we are reducing the impact of red tape burdens on small businesses, the Abbott government will also make additional amendments to simplify the process of establishing and maintaining an employee share scheme," Mr Billson said.
Consultations on the draft legislation are now open and submissions can be made via the Treasury website.