Gladys Liu (Chisholm, Liberal Party) Share this | Link to this | Hansard source

On behalf of the Chair of the Standing Committee on Tax and Revenue, I present the committee's report titled Owning a share of your work: tax treatment of employee share schemes, together with the minutes of proceedings.

Report made a parliamentary paper in accordance with standing order 39(e).

Matt Thistlethwaite (Kingsford Smith, Australian Labor Party, Shadow Assistant Minister for the Republic) Share this | Link to this | Hansard source

[by video link]—Australians are responsible for some of the world's most significant inventions and innovations, yet we have an unfortunate poor record of commercialising those innovations here in Australia. Many startups will move overseas to raise capital, commercialise, develop and produce their product. The lack of capital results from some of the taxation and regulatory arrangements that Australia has that operate as a disincentive to employees owning a share or a stake in a company that that they're working for. Australia has a relatively low take-up of employee share schemes. In 2015, according to Taxation Office reports, about $2 billion worth of employee share schemes were operating in Australia, and that's about 0.4 per cent of the total wages bill for the nation. In comparison, in the United Kingdom the result is about 3.6 per cent.

There are two basic forms of regulation when it comes to employee share schemes. Firstly, there's the Corporations Act 2001 requirements relating to disclosure, financial service licencing requirements, advertising, and hawking and the like. Then there are the income tax implications. Basically, if an employee receives a share at a discounted rate to the market value, that's included as income and taxed appropriately. There have been a number of attempts at regulatory reform in Australia to try and simplify the system over many years, most notably in 2009 and 2015. ASIC has published regulatory orders, class orders, that have simplified the system somewhat, particularly in respect of the disclosure requirements and financial service licensing requirements that have been welcomed by the industry.

In terms of the feedback that the committee received from those that made submissions—and I want to thank and congratulate those companies, particularly those startup and innovation based companies that have been involved in supplying their views on the current regulatory environment for our committee—the list of issues that relate to the low take-up of employee share schemes relates to the following things. Firstly, the definition of a 'startup': the company cannot be listed on the stock exchange, and turnover has to be less than $50 million per year. There's a 10-year limit on these sorts of things, so if the company's been around for more than 10 years then they don't receive concessional taxation treatment. And there are market valuation rules and safe harbour provisions. In terms of tax, if an employee receives shares or options at a discount, and they have a taxable income of less than $180,000 per year, then they're eligible for tax exemption on the first $1,000 of discounts received each year, and that has not changed since 1996. Many of the submitters indicated that that was out of date. If employees receive shares at a discount under a salary sacrifice arrangements then they can access deferred tax rules if they receive no more than $5,000 worth of shares per year. Many submissions said that was too low. Regarding the tax deferral to the point that the holder of the share ceases employment with the company, many saw this as an anomaly compared to international schemes, and it forced people to sell their shares to fund tax liability at the cessation of employment. Many called for a voluntary tax-withholding mechanism. In terms of all of these issues, the committee made a series of recommendations, and they basically fall into two areas.

Firstly, in relation to taxation requirements, the recommendations are contained in recommendations 6 to 9 in our report, on pages 32 and 33. We recommend changes to the definition of a startup; the definition of the safe harbour valuation contained in the income tax act; increasing the $1,000 limit in section 83A.35(2)(a) of the Income Tax Assessment Act to $50,000; and removing the taxation point on the cessation of employment under that act as well. In respect of the disclosure issues, they're contained in recommendations 10 to 18 on page 48 of the report. They go to issues such as a maximum of 15 per cent discount under the taxation act in respect of the startup regime, Importantly, at recommendation 10, we make the point that the government should proceed with the proposal that they've already announced on 13 November 2018 and discussed in the Treasury's Employee share schemes: consultation paper dated April 2019.

In conclusion, we believe that there are opportunities for Australia to incentivise employee share schemes and to remove some of the disincentives that currently exist in the system around taxation arrangements and disclosure, and ensure that Australia is globally competitive when it comes to not only encouraging people to commercialise their innovations in Australia and produce them here but encouraging the take-up of ownership in those schemes, and ensuring that people have the opportunity to buy shares and to be offered shares, at a discount, in an innovation and produce that here in Australia.

I commend the report to the parliament.

Tony Smith (Speaker) Share this | Link to this | Hansard source

The time allotted for statements on this report has expired. Does the honourable member for Chisholm wish to move a motion in connection with the report to enable it to be debated on a later occasion?

Gladys Liu (Chisholm, Liberal Party) Share this | Link to this | Hansard source

I move:

That the House take note of the report.

Tony Smith (Speaker) Share this | Link to this | Hansard source

In accordance with standing order 39, the debate is adjourned and the resumption of the debate will be made an order of the day for the next sitting.