BDO welcomes Government review of employee share schemes to boost Australian start-ups

27 February 2020

BDO Australia has welcomed the government’s proposal to review the laws on employee share schemes (ESSs), flagging that it will give start-ups a much needed boost in attracting talent and investors.

Treasurer Josh Frydenberg directed the House of Representatives standing committee on tax and revenue to launch an inquiry on the effectiveness of the 2015 changes to the tax treatment of employee share schemes. 

David Yong, People Advisory Partner at BDO in Australia said: “Recalibrating the tax treatments that underlie the ESSs will be a game-changer for supporting the growth of the start-up and technology sector in Australia.”

“This is a great opportunity for Australia to position itself as a global leader as businesses begin to respond to the fourth industrial revolution. Companies continue to find ways to integrate technology into their product and service delivery models. This is where start-ups will flourish as they have the ability to innovate and identify new ways to disrupt and change the way products and services reach the end consumer.

“To do this, they need the right talent and consequently need cost-efficient and non-cash means of attracting and retaining these individuals. While the current ESS concessions for start-ups introduced in 2015 have gone some way to making it attractive for start-ups to issue equity remuneration, feedback from businesses is that more needs to be done.

“The ESS rules are extremely complex. For example, given a relatively high employee turnover rate and low job tenure in the IT/tech sector, the aim of the grant of ESS interests to employees encourages them to stay longer with one company. Given the complexity of the tax treatment, it is often not clear to employees what potential benefits and tax costs can arise as a result of the ESS grant, which hampers its effectiveness.

“Given the strict qualification rules for the start-up concession, not all companies are able to take advantage of the new rules. The new review should be the basis for working out how to recalibrate the ESS start-up concessions to make them more attractive. 

“Australia cannot afford to miss this opportunity to create a vibrant and sustainable tech sector.”

Find out more at: www.ato.gov.au/General/Employee-share-schemes/ESS-basics/