Caitlin Fitzsimmons Online editor

Caitlin covers social media, marketing and technology and is BRW's social media editor. She has worked as a journalist in Sydney, London and San Francisco, writing for titles including The Guardian and The Australian Financial Review.

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Government kicks off review of employee share schemes for start-ups

Published 22 January 2014 10:34, Updated 23 January 2014 11:48

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Government kicks off review of employee share schemes for start-ups

Enticing staff with share options is a common recruitment tactic for start-ups. Photo: Jessica Shapiro

The Abbott government has launched a review of the rules governing start-ups and employee share schemes, the first step to fulfilling an election promise made in an interview with BRW last year.

The government announced on Tuesday it would hold consultation sessions in Sydney, Melbourne and by teleconference in the two weeks from January 28. Interested parties were also invited to make written submissions.

The review would examine the tax changes implemented by the former Labor government in 2009 and the effect in business, the barriers to offering an employee share scheme, the steps to overcome the barriers and the benefits of doing so, and any other issues and costs associated with employee share schemes. It would also seek to define what a “start-up” is.

When still in opposition last July, Treasurer Joe Hockey gave an exclusive interview to BRW, in which he described the current tax rules as a “massive handbrake on start-ups in Australia” and committed to winding them back in his first term.

This is an area where there is obviously a gaping hole in the government’s credibility,” Hockey told BRW in July. “So many start-ups have remunerated their senior employees with share options and the Australian Tax Office is now hitting them with a tax liability for what they may receive, rather than actually what they have received.”

The tax treatment of employee share schemes is just one of the factors driving Australian entrepreneurs overseas and start-ups that launch here to shift offshore after a few years. Earlier this month, it emerged that Atlassian, one of Australia’s biggest start-up success stories, was moving to the UK.

‘Complete pain in the arse’

Entrepreneur Matt Barrie, a member of the BRWYoung Rich, ran a generous employee share scheme for staff when he floated Freelancer.com in November last year.

Barrie told BRW he had to hire lawyers at great expense to structure the scheme.

“It was a complete pain in the arse,” Barrie says. “It should be an off the shelf thing, a stock-standard form that you can get from your lawyer or download. We had to hire lawyers to put it together and the cost and the complexity was unwarranted.

“They should just repeal it and bring it back to what it was before 2009. It’s great for the country if employees share in the return if a company is successful.”

Barrie says the changes that the previous government made to the employee share schemes in 2009 were “one of the most inane things that happened to the technology industry in the last couple of years” and did enormous damage to start-up culture in Australia.

However, Barrie doesn’t think it was intentional – he believes the Gillard government was targeting Macquarie bankers and the start-up industry was collateral damage.

The Gillard government was already reconsidering its position before the election. In May 2013, the then communications minister Stephen Conroy announced a welcome review of the scheme.

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