Outcome on employee share schemes expected mid-June

Treasury has confirmed that issues raised in submissions to its review of ‘employee share schemes (ESS) and start-ups’ will be considered by the Prime Minister’s taskforce established to develop a National Industry Investment and Competitiveness Agenda, which is expected to be delivered in the coming weeks.

AusBiotech submitted to the review, which closed in February, and has since made a submission to the Board of Taxation, which is conducting a review to identify features in the tax system that are hindering or preventing small businesses from reaching their commercial goals.

AusBiotech said in both submissions that changes made to the ESS in 2009 introduced a disincentive to staff by moving to compulsory taxation of shares and options prior to the realisation of any value.

The 2009 changes to ESS have reduced employee participation and reduced employer offerings, the organisation said. As a result, the majority of companies deserted the scheme. The key change was the move to compulsory taxation prior to the realisation of any value. Industry’s concerns proved to have substance with:

• over 90% of all plans suspended during the first year, and 30% suspended for up to two years (the majority have not been reinstated); and
• the number of employees participating in, and the amounts they’ve invested in, employee share ownership plans substantially diminishing since 2009.

The requirement for valuations of pre-revenue technology companies also provides an impost on small business and is almost meaningless for R&D companies.

AusBiotech has urged that the 2009 changes be repealed.