Making good on promises to tech startups, the Australian Government is moving forward on a review of tax rules surrounding employee share options.
The Treasury has invited comment on the issue and said it will begin direct consultations with interested stakeholders for two weeks starting 28 January. The talks will take place in Melbourne and Sydney, as well as by teleconference.
“The Government is committed to addressing the concerns that have been raised by startups in relation to Employee Share Schemes,” the Treasury said.
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Changes to tax rules made under Labor three years ago discouraged Australian startups from providing employee share options to employees, a key non-cash incentive for attracting and keeping staff.
Some in the startup community have blamed Australia’s tax structure as contributing to Atlassian’s decision to register as a UK business.
Former Communications Minister Stephen Conroy announced a review of the rules in June last year. Startups had been upbeat on the Coalition taking up the issue after the party’s election win and new Communications Minister Malcolm Turnbull had repeatedly pledged to take up the issue.
“They are absolutely a major disincentive to startup businesses in Australia, the way they are structured,” Turnbull said at a Telstra startup event in October.
“Subject to affordability ... I think we all recognise that we need to have a tax system that … encourages startups, that encourages people to issue stock to employees in new businesses.”
In its invitation to comment, the Treasury asked how the tax rules affected businesses, what barriers have stopped them from offering an employee share scheme, and what steps can be taken to overcome the barriers. Also, the Treasury asked about broader economic benefits that would result from changing the rules.
Nick Abrahams, an attorney with Norton Rose Fulbright who works on startup tax issues, said he has "cautious optimism" about the proceeding.
"It will be a complex piece of drafting," he said. However, setting dates for the matter suggests the government wants to do something "reasonably promptly."
Abrahams said he expects a major area of debate will be how to define a startup, since the government will want to avoid creating a tax loophole. The rule in question was originally intended to prevent big companies from issuing options to senior executives.
Submissions are due by 7 February and can be made online through the Treasury’s website. The Treasury said it will consider submissions lodged previously about the matter.
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