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Startups praise review into employee share schemes

Stephanie McDonald | June 18, 2013
The government will conduct a review employee share schemes, which many startups see as vital for attracting talent.

Startups are pleased by communications minister Stephen Conroy's announcement that the government would conduct a review the tax rules governing employee share schemes, but have suggested the government can do more to aid fledgling tech companies.

Share schemes make it easier for young, cash-starved businesses to attract employees. However, a 2009 budget measure meant that more employees would be taxed upfront for receiving company shares.

Andrew Campbell, co-founder of taxi booking app goCatch, said employee share schemes are vital for startups. His business is currently looking into such a scheme, but Campbell said the process has taken up a substantial amount of his and his fellow co-founder's time and is full of uncertainty.

"One of the biggest challenges a startup has is attracting talented people and as a startup business you're restrained with resources, so you can't necessarily pay people a market rate," Campbell said.

"Having an employee share options plan is a very important tool to be able to attract quality talent and reward them for the risks that they're taking on."

Dean McEvoy, founder of group-buying website Spreets.com, said he also looked into employee share schemes while he was at the company.

"We wanted to do it but couldn't afford to pay the tax upfront or the tens of thousands of dollars to a lawyer to setup some other scheme which can make it work without paying the tax upfront," McEvoy said.

He said one solution could be to only tax employee shares if the business is sold or it lists on the stock exchange and shares are traded for cash.

99designs' CEO Patrick Llewellyn said the review is "long overdue" and that the government "got it wrong" with its 2009 changes to the rules governing such schemes.

Llewellyn said an employee share scheme should be easy to administer and involve minimal cost to implement.

"They should [also] ideally be tax effective; that is, make them a capital gain tax event for employees when they receive a realisation," he said.

The government can do more
While all three startups Techworld spoke to were pleased with the review, they said the government could be doing more to help startups.

McEvoy called for the government to examine capital gains tax rollover provisions.

Businesses pay tax on any capital gains they make, which can include capital gains from selling shares or property. Small business concessions allow businesses to reinvest capital gains into new businesses, McEvoy said.

"The problem is that the way it is set up at the moment, if I have just sold a technology startup and want to invest in new startups, I can't," he said.

"It's because the ATO insists you invest in new companies that have at least 80 per cent of their value as a physical asset."

 

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