Update: Govt. changes around issuing employees equity were made on the 1st of July, 2015. Check out our free ESOP solution and guide to learn more! 

Senator Conroy announced this week that the government would launch a review into the way Employee Share Option Plans are taxed. The review is a welcome respite to a bizarre situation that makes Australia a laughing stock to other countries which pride themselves on creating a positive environment to promote innovation.

Australia is completely out of step with the rest of the world in the way that we tax employee share option plans. This is having a detrimental impact on Australia’s ability to foster innovative companies.

In summary, the current regime means that if a company gives share options to employees, the employee will be taxed on the “value” of the option at the time of grant – even if the shares are in a startup that have potentially no value and are completely illiquid anyway.

This leads to the freakonomic outcome that business owners, in trying to give an incentive to employees actually gives them a tax bill.

Australia needs to look to best practice in ESOP – Silicon Valley.

The review announced this week by the government is scheduled to have an outcome before the end of the year. Helpfully, Malcolm Turnbull has supported the review – so regardless of the election result, it looks like ESOP reform is on its way.

We will keep you updated on the progress of the review.

There are ways to work within the current legal framework and get ESOP-like incentives to employees via loan-plans or partly paid share arrangements. If you would like 30 minutes with a lawyer free to hear more on this, contact www.lawpath.com.au

The Helpful Lawyer

Dominic Woolrych

Dominic is the CEO of LawPath, dedicating his days to making legal easier, faster and more accessible to businesses. Dominic is a recognised thought-leader in Australian legal disruption, and was recognised as a winner of the 2015 Australian Legal Innovation Index.