Earlier this week, we put out a call on Twitter for the issues you’d like to see on the agenda leading up to the federal election, which Prime Minister Julia Gillard has set for Saturday 14 September.
We got a bunch of interesting ideas — funding for incubators and accelerator, a national startup ‘strategy’, and an entrepreneur visa — but thought it’d be great to get a broader snapshot, so have put out the call for you to submit your top three issues facing startups. We’ll use the feedback to shape our coverage over the course of this election year. Share your thoughts.
In the meantime, it’s obvious ESOPs (employee share option plans) are an important issue for many founders. It’s currently expensive and time-consuming to issue share options to employees as an incentive and reward for working on a startup. To put it simply, options are taxed when they’re issued, not when they’re realised (i.e. sold). There are complex and time-consuming ways around this, but you’ll still need to fork out thousands to lawyers and accountants.
So FLT was glad to hear Deloitte and Norton Rose have taken up the cause, and will lobby the Federal Government on the issue. Partners from the two firms have come together and are conducting a survey to collect feedback they can take to Canberra.
Several founders have told FLT they plan to incorporate in Delaware, partly because of the ESOP complexities in Australia. As @bradlind precised: “Movies are made in Hollywood, tech companies (are) made in Silicon Valley and incorp’ed in Delaware. Simple.”
Nick Abrahams is conducting a survey to gauge the views of Australian startups on ESOPs
But, the costs for Australia, aren’t just companies moving elsewhere, taking with them taxation revenue, opportunities for employment and ideas. Offering options to staff is commonplace in Silicon Valley, because it works. As the Sydney Morning Herald argued, staff who have a share of a company have a greater incentive to do great work.
Nick Abrahams, a Partner with Norton Rose, says until now the evidence of the impact on startups and early-stage companies has been anecdotal.
Together with Deloitte’s Joshua Tanchel, Abrahams plans to collect and analyse the feedback from the startup community. He says the government is considering ESOP reform as part of its Digital Economy White Paper (more on the White Paper here).
“Anecdotally, we know early-stage and fast growth companies struggle with the current regime,” he says. “Options are taxed in the hands of the receiver, so when they should be regarded as an incentive, they are not.”
The current tax policy was designed to close a loophole, which allowed much larger companies to avoid taxation if they remunerated top executives in a certain way. However, the policy has had an incidental negative impact on startup companies.
“If we want an innovative culture, the current tax regime around options does inhabit what can happen. We know there is a problem and think the Government should be interested in changing it, because it wants innovative companies to thrive.”
“We want the empirical evidence to support the anecdotal feedback we’ve been getting.”
FLT has made attempts to contact Treasury and relevant Government ministers but didn’t receive a response before publication. Stay tuned, we’ll let you know how we go.
The survey only takes a few minutes to complete. We’ll bring you the results once they’re available.
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