The government has announced that, in an endeavour to support innovative Australian companies starting up and to bolster entrepreneurship, it will reform the current treatment of tax on employee share schemes.
Employee share schemes give employees a financial share of the company’s potential success and can be used as an incentive by start-up companies to attract and retain high-quality staff.
Changes to the tax treatment of employee share schemes that were introduced by the Government in 2009 have effectively brought to a halt the use of such schemes for start-up companies in Australia. The Government plans to unwind the 2009 changes in regard to the tax point for options. The change applies to all companies, it means that discounted options will be generally taxed when exercised (share conversion), rather than when an employee receives the options.
Furthermore, the government stated it will also permit any employee share scheme options and/or shares provided with a small discount from eligible start up companies to not be subjected to the up front taxation, as long as the options or shares are held by employee for a minimum of three years.
Taxation will be deferred until sale of options under certain conditions.
Discounted shares will have the discount amount tax exempt.
Criteria for eligibility for the concessional treatment includes the company has an accumulated turnover of less than $50 million, the company is unlisted and has been incorporated less than 10 years.
In addition, to give start-ups more time to be competitive and succeed, the Government is extending the maximum time for deferral of tax from 7 years to 15 years.
The Government is updating the ‘safe harbour’ valuation tables. These are used by companies to value the options, to reflect current market conditions.
The integrity provisions that were introduced in 2009 plus the $1,000 up front tax concession for employees earning less than $180,000 each year will remain.
The Treasurer will consult with the industry regarding draft legislation and the proposed changes to commence 1 July 2015. This initiative is estimated to cost around $200 million over four years.
Contact Solve Accountants located on the Gold Coast, Qld Australia if you need help with your business tax.