Steve Irons (Swan, Liberal Party) Share this | Hansard source

I hear the member for Hughes saying what a great scheme that was—they had to pay tax on the options they received from an ESS before they even had the opportunity to gain a financial benefit. That is like provisional tax. Paying provisional tax on an ESS scheme—what a crazy idea.

As members would be aware, employees gain this financial benefit by converting the options to shares and selling them. Even if they do not do this, it begs the question: why are they being made to pay the tax? Under this measure, employees are also paying tax on an option that is very difficult to value and could potentially not result in a benefit to the employee at all, depending on how the business fares. We on this side of the House recognise that this is not fair, it is not equitable and it is stifling businesses' ability to offer globally competitive schemes to their employees. In fact, as a result of the changes by those opposite, stakeholders have highlighted that the provision of options under these schemes were effectively ended. This was particularly the case for start-up businesses, which this government recognises as being the businesses which need the most support to ensure their future success. To combat these competition-stifling changes and to re-ignite interest in establishing an employee share scheme, the bill before the House seeks to make two central changes to the scheme's tax treatment.

The first of these amendments will effectively change the way options are taxed so that they revert to being a benefit for employees rather than a potential burden. The government will achieve this by allowing employees who enter into an employee share scheme to defer the tax they pay on the option until they actually exercise those options by converting them to shares, rather than paying the tax up-front. Another provision extends the maximum time for tax deferral from seven to 15 years. This is based on the understanding that it does take time for businesses to grow.

As I said earlier, there are employees whom businesses will want to retain in the long term, but there are also employees who can see the value in a business and will want their share in the business to be greater than what current laws allow them to share in it. To support all employees, no matter whether they work for a large corporation or a business that has just opened its doors, to make a greater investment in their workplace, this government is proposing changes to double the ownership percentage in a business that an individual can have. Currently employees can own a maximum five per cent in a company under an employee share scheme, but, thanks to the new provisions outlined in this bill, they will now be able to own up to 10 per cent. This will assist employers to attract and retain valued employees, who, in the global environment we live in, have the ability to cross not only domestic borders with ease but international borders as well. This 10 per cent threshold is also consistent with other provisions in Australia's tax laws and those of other countries.

The government has not, however, just gone out on a whim with the proposed changes in this bill. We have consulted widely across Australia and we have reviewed all submissions made by an array of stakeholders. I repeat: we have consulted wildly—widely.

See this speech in context