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

I know that, as someone who worked in business before, you would have loved to have a good ESS scheme to support your valuable employees. We held consultation meetings in Sydney and Melbourne, held teleconferences for those who were not able to attend those meetings and reviewed approximately 50 submissions. Following these consultations, the government also announced our policy response on 14 October 2014 as part of the Industry Innovation and Competitiveness Agenda. A further five roundtable meetings were held regarding this draft policy and one teleconference, with another 50 or so submissions received.

In response to concerns raised by stakeholders at this time, a second key measure will be implemented in the bill before the House to encourage more Australian businesses to offer an ESS. These concerns were in relation to red tape and compliance costs, which, as members on this side of the House would know, the coalition has no time for, if they unnecessarily burden business and enterprise. In the case of the comprehensive company valuations that are required to establish an ESS in Australia, this is exactly what we are seeing—unnecessary overregulation. When valuations cost $50,000 in Australia, while the costs in the United States are between $2,000 to $5,000, I think it is safe to say that the government compliance costs are strangling businesses' ability to offer competitive schemes to their employees. And if we cannot offer competitive schemes, we all know what our future will hold. Our best employees may move overseas, where they are likely to receive a better offer because they are not restricted by taxes and unnecessary compliance costs.

I am pleased to advise the House that, as a result of the extensive consultation process, other provisions have been added to the government's original draft policy to form the bill before the House. That is because the coalition understood that further reform was needed, particularly in relation to start-up businesses. As I previously said, we are a government that recognises that it is these new businesses which will need the greatest support in today's economic environment not only to establish themselves but to grow in the long term. They cannot do that without good and valuable staff; and this is a way to retain those staff. Not only do we recognise this, but we also design and implement policies that will meet these needs head on by providing a range of concessions to assist in the future success of these businesses.

Before I explain these additional concessions to the House, I would also like to highlight that it is not only through the proposed changes to the employee shares scheme that this government is supporting small businesses. In fact, the 2015-16 budget, which the Treasurer announced earlier this month, included a number of measures that give small businesses a leg up and encourage them to look at ways to grow their business. They include: tax cuts of 1.5 per cent for incorporated small businesses with an annual turnover of up to $2 million; a five per cent tax discount, up to $1,000 a year, for unincorporated businesses; and an immediate tax deduction for each and every asset purchase up to $20,000 for all small businesses. Each of these concessions will support small businesses across Australia and will give them the confidence they need to have a go and invest in their company's future. This may be through a range of measures, including taking advantage of the tax deduction and buying new equipment, employing additional staff or expanding the business into other markets.

The concession for businesses proposed under the amendments before the House specifically focus on eligible start-up businesses. Under this concession, eligible start-up businesses will be able to issue options or shares at a small discount and, if they hold the shares or options for at least three years, they will not be subject to up-front taxation. Under this concession, eligible start-ups will be those businesses which have been incorporated for less than 10 years, are unlisted and have a turnover of no more than $50 million per year. Start-up companies with venture capital investors will also be eligible for this concession.

The Minister for Small Business Bruce Billson said in this place that the discount component for options concession 'will be taxed when the employee is in a better position to fund the tax liability. For shares provided at a discount of up to 15 per cent, the discount component will be exempt from tax.' These changes, if passed in this place and in the other, will be the rules and regulations by which future employee share schemes will be assessed from 1 July this year. They will not affect existing schemes, as these have already been negotiated between employees and employers and the changes would otherwise, therefore, interfere with these contractual arrangements. Of course, businesses could opt to introduce a new scheme under which these changes would apply.

I also take time to highlight that—although this government is proposing a number of amendments to the employee share scheme in response to stakeholders feedback—we will be retaining the integrity measures that were introduced in 2009, which were designed to limit tax avoidance opportunities. We are also making it clear that the 50 per cent capital gains tax discount will be available for options issued under the start-up concession. This includes those circumstances where the underlying shares are held for less than 12 months.

The last key provision in the bill before the House that I would like to take this time to highlight is in regard to the tax that is currently levied when an employee ceases employment. This is based on the concept that, once a person ceases employment, the mutual interests of that business and the employer also cease and so too should the tax concessions they receive. Concerns were, however, raised by stakeholders that this tax is, therefore, being paid on gains that they may never realise. In response to this, the government is proposing to change the refund provisions so that income tax paid on options when employment ceases will be refundable if the option is not exercised and lapses or is cancelled.

As part of a team that supports small businesses, and we are known to support small business in Australia, and as someone who has had experience, as have many on this side of the House, this is another piece of legislation and support that this coalition government is giving to small businesses across Australia, and I commend the amendments to the House.

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