Bipartisan support on potential employee share scheme reforms welcomed by tax expert

Australia needs to overhaul the rules around employee share schemes if it wants to create its own Silicon Valley, a tax expert says.


“We can’t expect to have a Silicon Valley here in Australia if we’re not offering the same playing field they are on over there,” says Adrian O’Shannessy, an expert panel member of Employee Ownership Australia & New Zealand.


Employee share schemes enable companies to offer employees a share of the company as part of a salary package, but concerns have been raised about when the benefit should be taxed and costs associated with implementing and managing a scheme.


The Labor government earlier this year launched a review into employee share schemes and the Coalition opposition has pledged to consider changes.


Easing and simplifying the rules around the schemes is high on the start-up sector’s election policy wish list.


O’Shannessy told StartupSmart start-ups weren’t able to offer cash to attract talent to their enterprises and could only offer “the potential for cash” in the form of options in the company.


“In the US and UK they recognise that and they don’t try and tax people before they get the cash,” he says, adding that Australia’s rules mean tax is applied on the option before it can be realised.


“It might not turn into anything. We need to wait until it turns into something.”


O’Shannessy says he’s encouraged changes could be made in the future, saying both Labor and the Coalition are “interested in and would like to do something with it”.


One reservation O’Shannessy says he has, however, is that the review doesn’t define the start-up industry broadly enough.


“It’s talking about start-ups with a few employees. That’s too micro,” he says.


Employee Ownership Australia & New Zealand says some guiding principles around any review of employee share schemes for start-ups should include several aspects, such as:


  • Placing Australia in a competitive position globally and ensure a level playing field with both the US and UK. “This means that any tax provisions should be on par with the global philosophy that employees of start-ups are largely rewarded through employee share scheme arrangements which are taxed on capital account and only when a realisation event occurs;
  • Should prioritise option plans;
  • Any changes should not impose greater complexity and burdens on companies;
  • Company valuations should be simplified;
  • Definition of start-ups should be simple and indicative of the actual market;
  • Any reforms should happen in conjunction with other reforms around the Corporations Act, for example around prospectus filing requirements.


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