Shareholder tax reforms introduced to help innovative start-ups

Treasurer Josh Frydenberg is expected to introduce a bill reducing burdensome taxes imposed on employee share scheme arrangements in a bid to support the start-up sector.

Treasurer Josh Frydenberg is expected to introduce a bill reducing burdensome taxes imposed on employee share scheme arrangements in a bid to support the start-up sector.

The changes come after a Parliamentary Inquiry into employee share scheme (ESS) taxation found the existing rules can actively discourage this type of remuneration, with some businesses attributing their decision to list overseas to avoid cumbersome Australian laws.

Mr Frydenberg said the overhaul will mean workers can enjoy the full benefits of their hard work.

“The Morrison Government wants Australians to share in the value they create,” Mr Frydenberg told the Australian Financial Review. 

Under the current rules, workers involved in ESS arrangements face sizeable tax bills when they hit one of three trigger points: restrictions on selling the shares are lifted; 15 years have elapsed since the shares were granted; or the employee leaves their job.

In some cases, these tax bills have been so large the employee has no choice but to offload their stake in the business to cover their liabilities.

Mr Frydenberg’s bill would remove the liabilities for employees leaving their job, ideally helping them to go on and found their own businesses and continue to grow Australia’s start-up sector.

The changes were first proposed in the May Federal Budget, and Mr Frydenberg said they will apply retroactively to existing ESS arrangements.

A welcome change

Steuart Roe, founder and CEO of share registry management firm Registry Direct (itself once a start-up), said the changes will introduce welcome tax relief for the movers and shakers of Australian start-up businesses.

“The current tax regime just isn’t fit for purpose and doesn’t stack up internationally, and has stifled the entrepreneurial spirit of many Australians,” he said.

“These changes help create an alignment between workers, businesses and shareholders towards a common goal. Everyone’s a winner.”

Mr Roe said the reforms are long overdue and while there is more to do, if implemented, would help Australia grow to become a global hub for innovation, with a thriving and rapidly growing start-up sector.

“This proposal will remove some of the barriers that have stopped Australians striking out on their own, starting new businesses and creating new jobs,” he said.

Registry Direct provides share and unit registry services and runs Australia’s only software-as-a-service (SaaS) registry management platform.

The company has recently set new records for growth, growing its fee-paying client base by net 96 new businesses, while projected platform revenues from unlisted entities increased to almost $600,000 for the 2022 fiscal year – an increase of more than 70%.

Registry Direct also received $256,729 in research and development tax incentive grants, further supporting the business’s growth. 

Join Steuart Roe, founder and CEO of Registry Direct, on Reach Markets’ ‘The Insider: Meet the CEO’ on Wednesday, 8th December, at 12pm (AEDT). Click here to register.

Reach Corporate provides Corporate Advisory Services, including managing investor communications on behalf of Registry Direct and will receive fees for its services


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