Changes to the tax treatment of employee share schemes have been approved by Parliament, with implementation set for tomorrow (1 July).
Under the changes, the tax on options granted to employees is now paid when the option is converted to a share.
According to Small Business Minister Bruce Billson, the change unwinds reforms implemented by the former government, under which options were taxed when issued to employees.
"This meant employees were hit with a substantial tax liability, even though there was no material capacity to generate the resources to pay it, for example by selling the underlying share," said Mr Billson.
The Government has also introduced a new incentive that will allow further deferral of the taxing point where eligible start-up companies issue shares or options to their employees at a small discount.
However, the changes only apply to some companies. To qualify, companies must be less than ten years old, unlisted, and have turnover of under $50 million.
The requirement to be unlisted means that many Australian biotechnology companies will miss out. It is understood that around 100 Australian biotechnology companies will be excluded from qualifying for the new scheme due to the listing exclusion.
AusBiotech CEO, Dr Anna Lavelle, has welcomed the overall reform as being a step in the right direction, but expressed disappointment at the qualifying criteria requiring companies to be unlisted.
According to Dr Lavelle, employee share schemes are particularly important for the biotechnology sector, where companies are often established with no short to medium term prospect of generating revenue.
“In Australia, a listing is often the best way to attract capital to support development because of the limited availability of venture capital,” she previously told BiotechDispatch. “In a global environment where competition for specialist talent is intense, employee share schemes can be a highly effective way of attracting people into the sector.”
AusBiotech argued that companies should be eligible if they qualify for the R&D Tax Incentive.