In his latest, exclusive column for My Business, Federal Minister for Small Business Bruce Billson outlines the government’s new stance on taxation of Employee Share Schemes.
Here's an excerpt from Billson's latest column, which you can read in full in the forthcoming February print issue of My Business:
We all know innovation and entrepreneurship are such important ingredients needed to grow a small business – and indeed the Australian economy. I believe all Australians should be encouraged to pursue and commercialise their ideas domestically, and the tax system should not be an impediment to innovation.
Consultations have suggested that the current taxation of Employee Share Schemes in Australia is causing problems, particularly among small start-up firms. Time and time again I have heard these problems are driving firms offshore, where more favourable tax conditions exist.
Employee Share Schemes allow employers to provide shares to their employees at a discount to the market price. For employees, this provides a financial share in the potential upside of the company.
For employers, Employee Share Schemes provide an attractive way of remunerating employees, particularly when cash flow may not allow the payment of internationally competitive salaries. Employee Share Schemes are a great way to align the interests of employers and their employees, and can encourage business buy in, positive working relationships, boost productivity and reduce staff turnover.
In 2009, the former Federal Government made changes to the way that Employee Share Schemes are taxed, which has resulted in impediments to the use of Employee Share Schemes. Currently, options that are issued under an Employee Share Scheme are generally taxed when provided to an employee, despite the employee usually being unable to realise any immediate benefit from those options. This is inconsistent with the tax treatment in other countries, including the UK and the US, and has thwarted the provision of options under Employee Share Schemes in Australia.
Further, creating and maintaining Employee Share Schemes in Australia is far too complex, imposing unnecessary red tape on businesses. This is particularly problematic for start-up companies, who are poorly placed to bear the impact of these regulatory costs. The Government will address these issues and make Employee Share Schemes more accessible, more practical and simpler for employers and their workers.
Consultation on the draft legislation to enact these amendments is now open, with the changes intended to come into effect from July 1 of this year. More information on the consultation process can be found on the Treasury website at www.treasury.gov.au.
To read Minister Billson's column in full, keep an eye out for the February print issue of My Business.
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