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Sunday, March 27, 2022

Employee share reform a budget boost for local tech - https://ift.tt/LlyaTNV

Treasurer Josh Frydenberg will on Tuesday unveil changes to employee share scheme regulation to make it easier for Australian companies to compete for talent, and to remove a ‘perverse’ incentive for local startups to shift their tax domicile offshore.

Importantly, the much-anticipated employee share scheme reforms will be rolled into the budget measures bill, meaning the changes will be passed by the Parliament before the election – providing certainty for the tech sector in the hyper-competitive global market for talent.

The changes, in three key areas, have been long sought-after by the technology sector and levels the playing field for non-listed local companies to offer flexible and attractive equity incentives to employees compared to listed firms or multinational companies based elsewhere.

The Technology Council of Australia welcomed the changes, saying employee shares schemes are an important tool for attracting great talent, and rewarding that talent over time.

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While Australia’s employee share scheme regulation has evolved over the past decade, it has never quite been fit for purpose.

The Treasurer committed to review the scheme in the budget last year, and the fact that it has delivered on three important changes in time for the budget this year is great news for local companies Tech Council chief executive Kate Pounder said.

“It’s particularly important for up-and-coming Australian companies in an environment where there are so many skills shortages and where remuneration has been going up at 15 to 20 per cent [annually],” Ms Pounder said.

“They basically need everything in their armoury to be competitive, and to competitively reward talent,” she said. “The timing of the changes to these rules is excellent to help up-and-coming companies to offer more competitive packages to their staff.

“They have said they are going to move this legislation as part of the budget measures bill. That’s great because it means that it will pass before the election.”

With the legislation passed before the election, the tech industry – and everyone else that takes advantage of the employee share scheme – will get the certainty that it will be in place from July, Ms Pounder said,

The employee share scheme (ESS) changes cover three areas. The first was actually passed in February and involved the “cessation of employment” as a trigger for tax liabilities to be incurred on shares issued under the scheme.

This undermined the benefit to the employee, and acted as a disincentive to job mobility (both of which ultimately hurt an employers ability to attract global talent).

The second area of change, which will be announced by the Treasurer of Tuesday, means that share and options issued by local companies will be treated the same way in relation to tax. This was not the case previously and put Australian companies at a disadvantage.

The tax treatment of options issued to employees by Australian companies has been more onerous than for multinationals domiciled for tax purposed elsewhere.

“For Australian companies that issued options – which is pretty common – it basically forced them to headquarter in the US to avoid that problem. And that’s not an outcome that anyone wants,” Ms Pounder said.

“Fixing that perversity in law is a really practical, sensible outcome that’s going to make a big difference for Australian companies.”

The government said the changes would allow more Australians to share in the value they help to create by being rewarded with equity in the companies they work for.

Currently, employee share schemes generally favour employees of listed companies and, in particular, the senior managers at those firms. This is because the current law imposes arbitrary caps on the number and value of options and shares that can be issued to employees of unlisted companies and to junior employees.

The government is now introducing changes that mean employees at all levels will be able to directly share in the value they help create by removing the cap on the number of options and shares that can be issued, as well as removing the value cap of $5,000 and replacing it with a monetary cap of $30,000 which accruable for any unexercised options for up to $150,000 over five years.

The government says the changes will greatly simplify the scheme, which will itself act as an incentive for more companies and their employees to participate in it.

Do you know more? Contact James Riley via Email.

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Employee share reform a budget boost for local tech - https://ift.tt/LlyaTNV
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