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Startups Got $200 Million In Tax Breaks Today But Not Everyone Is Happy

Photo: Scott Barbour / Getty Images.

The federal government announced today it was changing the way employee shares and options will be taxed, an issue which has given startups grief in the past.

Abbott confirmed changes made to the ESOP by Labor – on when options are taxed – will be reversed at a cost of about $200 million over four years.

“We are reversing the changes that the former government made in 2009 which essentially stopped employee ownership in this country,” he said, adding the new taxation treatment of employee share schemes will be devised with startups in mind, to help them attract and retain talent as well as commercialise good ideas within Australia.

But the changes and eligibility criteria are very specific and for that reason not everyone in the startup community is happy.

Eligible companies must not be listed on the stock exchange, must have a turnover of less than $50 million and have been incorporated for less than 10 years.

Freelancer CEO Matt Barrie has long called for share option taxation reforms and what was announced this afternoon didn’t impress him.

“Not exactly jumping for joy,” he said. “They carved out all listed companies.”

Barrie told Business Insider the ESOP changes don’t help listed or more established tech startups.

He said:

These changes don’t help Freelancer, Atlassian, Kogan, MigMe, Red Bubble, OzForex, iSelect, iBuy etc. – the companies doing huge amounts of employment in the sector. They are excluded due to being listed or from turnover being too high, and it creates a disincentive for listing on the ASX, which is becoming the primary path for financing technology companies in Australia.

In 2013, a total of 59 companies were financed by Australian venture capital. From Jan-Aug there were 55 listed on the ASX. I don’t see why they needed to include the exclusion for listed businesses.

Some of Australia’s smaller tech companies, which aren’t listed, said this afternoon’s changes are a step in the right direction.

Hamish Petrie, founder and MD of ingogo, said “The change to employee share schemes will remove a huge headache from Aussie start-ups. Under the old structure we’ve had to spend a ton of money on legal and accounting fees to put a legal scheme in place for our employees.”

Petrie said it wasn’t just about money either, it was also about management time which was being wasted on compliance.

“Having logical regulations in place will mean start-ups and early stage companies like ingogo can use more time and resources to build new products and drive more growth,” he said.

“Our international competitors in other markets haven’t have to grapple with this wasted time and energy. If Australia is serious about competing globally against other countries in this space, we need to get rid of these kind of barriers.”

StartupAUS this afternoon said the government’s startup taxation changes are a step in the right direction towards correcting market failures.

“The fact that the hugely damaging regulations around ESOPs for startups are finally being changed is hugely positive, and the Government should be rightly commended for doing so,” Peter Bradd, StartupAUS board member and entrepreneur-in-residence at Fusion Labs said.

“However, the Competitiveness Agenda is but the first step of many. There is still a huge amount of work to be done, but this hopefully signals that we are on the right track.”

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