Australian Government Says ‘Yes’ to ESS


For startups seeking to hire top talent, Australia’s 2009 revision to Employee Share Schemes (ESS) meant sweat equity was no longer an effective alternative to traditional remuneration. On Tuesday 14th October, the Government, as part of their ‘Industry Innovation and Competitiveness Agenda’ announced an about turn that’s great for the country’s most exciting businesses.

As part of a move to make Australia more competitive in the global market, the PM outlined four ambitions for business in the country:

  1. a lower cost, business-friendly environment with less regulation, lower taxes and more competitive markets;
  2. a more skilled labour force;
  3. better economic infrastructure; and
  4. industry policy that fosters innovation and entrepreneurship.

To turn those high sounding words into high impact actions, the paper outlines a series of proposals designed to benefit Australian businesses. These ‘Key Initiatives’ would be central to developing a startup environment that welcomes innovation and startup growth going forward. Those initiatives include:

  • Encouraging employee share ownership
  • Establishing Industry Growth Centres
  • Reforming the vocational educational and training sector
  • Promoting science, technology and mathematics skills in schools
  • Accept international standards and risk assessments for certain product approvals
  • Enhance the 457 and investor visa programmes

 

The option for sweat equity

The most important immediate proposed change for startups is the change to ESS. Giving cash-strapped startups the opportunity to provide an alternative form of remuneration, the changes affect the taxation of options given at a small discount as a form of payment for employment. 

Effectively nullifying the changes that forced options holders to pay tax up front, the new rules would allow employees to hold options tax free until they are exercised (turned into shares). It’s a complete and welcome reversal.

To qualify the employing startup will have to meet the following requirements:

  • Turnover must be below $50 million
  • Must be unlisted
  • Under ten years as an incorporated company

 

The start of something

It’s a start! And we’re excited about the prospect of more changes that could help to take Australian startup on par with its international counterparts and beyond. This country is in a fantastic position for growth; closely positioned to some of the fastest growing global markets and running out of the world’s most celebrated cities. 

We’re hopeful that this forward step is the first of many and, in stark contrast to our mood following the government’s last big startup announcement, we’re looking forward to seeing what’s next!