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Employee share schemes could soon be treated as capital for the purposes of taxation, at the direction of key recommendations made by a parliamentary committee.
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Employee share scheme report lands in the House
25 August 2021
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The standing committee on tax and revenue tabled its Owning a Share of Your Work: Tax Treatment of Employee Share Schemes report on Monday, detailing 18 key recommendations off the back of an inquiry tasked with probing the effectiveness of 2015 reforms.
The committee’s recommendations centre around the suggestion that employee share schemes (ESS) be treated as capital for tax purposes, making employees subject to capital gains tax if they trade or sell their shares, and that the ATO streamline ESS compliance requirements.
Committee chair Jason Falinski said the recommendations are key to supporting innovation and Australia’s start-up economy.
“Employee share schemes matter because they support new businesses, innovation and start-ups, which are the engine of higher productivity in our country,” Mr Falinski said.
“Higher productivity leads to sustainably higher wages, better products and services, greater competition and more choice. All these outcomes directly impact on the quality of life that hard-working Australians enjoy.”
The committee’s recommendations include proposed amendments to the Tax and Superannuation Laws Amendment Employee Share Schemes) Act and the Income Tax Assessment Act, aimed at simplifying current ESS tax arrangements and make tax concessions broadly available to those taking part in the schemes.
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It was recommended that the ATO collect and publish data on ESS use across Australia, and that it roll out a public awareness program to inform employers of the existence of the schemes and where to access resources on them.
The committee also recommended that the Productivity Commission launch an investigation into the ways employee share schemes can be improved locally, and find ways to adopt productive arrangements established abroad, in Australia.
Other recommendations could see the ATO reduce its documentation on ESS to no more than two pages, and establish a “one-stop shop” approach to ESS compliance, which would include full documentation, processes and ASIC relief to offer businesses everything in one place.
The inquiry into the effectiveness of the 2015 employee share scheme reforms was first announced in February last year, when it was faced with determining whether previous changes were effective in “bolstering entrepreneurship in Australia and supporting start-up companies”.
The committee was left to field 20 submissions throughout the inquiry, which came to form a consensus that the government needed to embrace bolder reforms that make it easier for businesses to enter into an ESS.
Australian tech giant Atlassian said in its submission that employee share schemes have become a crucial part of attracting talent and driving growth.
“We are mindful that large, successful technology enterprises are not born overnight — they grow from fledgling start-ups that struggle for early survival,” Atlassian said.
“And a strong ESS scheme is key to attracting and retaining the talent required for survival and success in today’s global tech sector.
“Given the fierce competition between technology hubs around the world, a competitive ESS is crucial to ensuring that Australia can continue to attract and retain the best companies and employees and that Australian companies are not put to a disadvantage compared to their global peers.”
In its submission, The Tax Institute welcomed the start-up concessions rolled out in 2015, but said that significant hurdles remain for the SME market in adopting ESSs which, in many cases, result in the schemes not proceeding, despite surging appetite.
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