In 2009, the Labor government introduced tax changes which saw employees being taxed when share options were received from their company, rather than when the share options were sold or became full shares.  While these changes were implemented in an effort to curb and eliminate instances of executives reducing tax payable by receiving income by way of share options, the changes introduced were arguably too broad and start-up companies have suffered.  Such suffering has caught the attention of major accounting firms and the media, prompting the Abbott government to recommence a Treasury review into the Labor government’s tax changes.

To entrepreneurs looking to start-up a company, offering share options is a great way of baiting and recruiting capable and motivated employees without having to offer high, unviable incomes.  In a submission to the federal government regarding employee share schemes, Deloitte put forward that tax concessions on share options in a start-up company should only be available to employees who earn $180,000 or less, and that employees should pay tax only on disposing of the shares in a private sale or an initial public offering, or at the 10 year mark.

In addition to this submission to the Treasury, there have also been calls for the term “start-up” to be clearly defined so as to limit so as to limit access to tax breaks.  Deloitte put forward that the term should be restricted to an Australian-based business with consolidated revenue of $15 million per annum or less, that provides new products or services for no more than 10 years in Australia.

While different accounting firms, such as EY, PwC and Norton Rose Fulbright have put forward slightly different submissions, it is clear that a definition of a “start-up’ company is needed and it is apparent that it is of popular opinion that employees involved in share options should only be taxed when such shares either become full shares or are sold.

If you have any questions about tax breaks relevant to your business, the experienced tax accountants and lawyers here at the Quinn Group can help.  Call 02 9223 9166 to arrange an appointment, or submit an online enquiry.