• Tax Alert: Potential Employee Share Scheme Tax Concessions for 'start-up' companies

Government could do more in the global war for talent

The Federal Government has released a discussion paper outlining proposed reforms to address the perceived administrative burden the (“ESS”) tax laws (and associated corporate regulations) placed on start-up companies. The discussion paper also acknowledges the difficulties and costs associated with valuing shares in a start-up.

The definition of a ‘start-up’ proposed in the discussion paper is an unlisted company which:

  1. has 15 or fewer employees
  2. has an annual turnover of less than $5 million
  3. is not a subsidiary of another entity
  4. has been in existence for a relatively short time (a period of 5 or 7 years is suggested)
  5. is involved in innovative activities; and
  6. has the majority of its employees and assets in Australia

The discussion paper examines a range of potential tax concessions for start-up companies, including:

  • automatic deferral of the taxing point on ESS interests
  • deferring the payment of tax on ESS interests until the shares/rights are disposed of
  • imposing a flat 15% tax rate on ESS discounts derived by employees; or
  • increasing the ‘upfront’ tax free concession from $1,000 to $5,000

Grant Thornton comment

Grant Thornton welcomes the reforms and is pleased to see the Government finally recognising Australia’s lack of competitive advantage in the fight for talent.  However, the definition of a start-up is considered too restrictive and does not go far enough. As such, the proposed reforms are unlikely to impact many of the employers and employees for which the reforms are aimed to benefit.

Grant Thornton will be lodging a submission with Treasury by the closing date of 30 August 2013 to convey the views of a number of our clients potentially impacted by these proposed reforms.