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Government to move on employee share schemes

The start-up community is set to benefit next year from changes to employee share schemes and progress on the setting of clear crowd source funding rules.

The start-up and venture capital sectors have loudly complained about tough conditions for aspiring tech entrepreneurs, warning they are forcing many to relocate overseas and damaging Australian competitiveness.

The planned reforms are part of the government’s National Industry Investment and Competitiveness agenda. Prime Minister Tony Abbott is expected to release the agenda shortly with parliament scheduled to return next week and sit for a fortnight.

The proposed changes must first be introduced into and passed by the parliament. It is unlikely they will take effect until at least next year although the government is taking a more cautious approach towards reforming crowd source funding rules.

The government has long planned to proceed with reforms to assist start-ups and as recently as last week Treasurer Joe Hockey said he was “absolutely determined” to overhaul changes made to employee share schemes in 2009 by the former Labor government.

It is very likely the government will first tackle the changes to employee share schemes as this has been approved by cabinet and is less complex than the formalisation of crowd funding rules.

In 2009, Labor garnered a $200 million budget saving by changing the rules so that employees paid tax on the value of shares upon issuance by their employers. Previously, some employees could wait several years before paying tax on the shares with many opting to pay capital gains tax upon the sale of the shares.

The change meant that start-ups had to close down their employee share schemes and reach into their own pockets to pay higher salaries. This is a further drain on cash reserves and can pose difficulties for enterprises still getting off the ground.

According to media reports this week, the Abbott government is now looking at implementing a new scheme that will again remove the obligation to pay tax up-front and which is based on a model currently in use in Britain. However, the program will be limited so the government doesn’t sacrifice major tax revenue.

Senior Tax Advisor at the Institute of Public Accountants, Tony Greco, told Dynamic Business the changes would help start-ups recruit staff, particularly those that were unable to pay employees at standard market rates. He also said the political waters looked favourable and that the British model had worked well over a period of ten years.

“It’s got bipartisan support. (Opposition Leader) Bill Shorten’s basically said they went too far back in 2009,” he said. “It’s always good to replicate good features of a system that’s been in place for some time. The UK scheme’s been in place for more than ten years.”

Mr Greco said the key issue was striking the right balance to ensure that major companies could not access the scheme while not barring smaller start-ups from participating. “They (the government) don’t want it to apply to the big end of town, so it’s going to come down to what the definition is of a start-up and what criteria they use to define who is in.”

The government will move more cautiously on formalising the rules for crowd source funding platforms like Kickstarter which help emerging business raise money online.

Treasury has some concerns about crowd-based schemes and appears likely to push for limits on the amount that can be raised and for caps on individual contributions.

The Australian has reported that the starting point for Treasury consultations will be a $2 million cap on the amount companies can raise via crowd source funding platforms in any one year. The suggested limit at which individual contributions should be capped is $10,000.

Delays arising from the consultation process may drag out the finalisation of clear rules governing the regulation of crowd source funding platforms, possibly to 2016.

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Joe Kelly

Joe Kelly

Joe Kelly is a writer for Dynamic Business. He has previously worked in the Canberra Press Gallery and has a keen interest in business, the economy and federal policy. He also follows international relations and likes to read history.

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