Can non-cash incentives attract the talent you need? How the Government proposes to change employee share schemes for small start up companies

Come 1 July 2015, change is coming for Australian start-ups and their employees. The Government is introducing changes to the way start-up companies can offer employee share schemes (ESS). The Government is advocating the changes on the basis that they will improve innovation and productivity.

Photography / nist6dh

Photography / nist6dh

Earlier this year the Government released the Tax and Superannuation Laws Amendment (Employee Share Schemes) Bill 2015 for public consultation. As a result of industry input, some changes were made to the bill, which were announced this month as part of the 2015 budget. The total package of amendments presented by the Government is intended to make ESSs more appealing to both employers and employees, particularly those of small start-up companies.

Assuming the bill becomes law, employees of eligible small start-up companies will no longer have to pay tax on their ESSs rights until they receive some benefit for them. The amendments will also change the way discounted shares under an ESS are taxed so that employees will no longer be taxed on the discount. The changes are intended to provide more beneficial tax arrangements for employees than are available under the existing laws making ESSs more appealing to employees and a better incentive for employers to provide. Strict eligibility requirements and limitations will apply under the proposed changes.  

ESSs are a great way for small start-ups to offer employees incentives where the final dollar figure of their salary might not be as competitive as more established companies. In his budget night speech, Treasurer Joe Hockey said that the changes are designed “to make it easier for small startup companies to attract the skills and talent they need to grow.” However, the real effect of the changes remains to be seen. 

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