The government announced changes to employee share option rules on 14 October 2014. Deloitte is pleased to see so many of the changes from our submission to Treasury in February 2014 reflected in the government announcement, including:
- Taxation of options for start-ups only at the time the underlying shares are sold and not before
- Using revenue as a key criteria for defining a start-up
- Holding of the equity instrument for three years
- Extending the period of holding an option beyond the current seven years
- A review of the valuation requirements underpinning equity taxation
- A need for standard documentation for share plans for start-ups
Our submission set out to bring the voice of the start-up sector to Treasury and the government through our ‘Barriers to innovation’ survey. This was completed by over 100 companies across multiple sectors.
We are keen to keep this conversation going. Despite this step in the right direction, there are still a lot of unanswered questions for owners of start-ups, such as:
- Will my current plan be able to access the concessional treatment or will I have to create a new plan to be eligible?
- How will the start-up criteria be managed? e.g. Will the $50m aggregated turnover be taken from the company’s last P&L? Will the ATO have to approve the concession or is it self-assessment?
- How do you value shares in an unlisted company, as that value is a key requirement in valuing an option using the tax tables?
- Is this start-up concession available to founders and investors as well as employees or just employees?
- Is this start up concession for Australian business only? Or can it apply to equity provided to Australian employees of overseas companies investing in Australia as well (providing the start-up definition is met)?
Deloitte looks forward to further consulting with the Government & Treasury as they work through the above items and other issues affecting start-ups.