AWS in fight for Aussie IT talent

Atlassian is rare as an Australian startup success story; lately there has been an increase in focus on the tax regulations that hinder startup growth.

The Employee Share Option Plan (ESOP) taxes employees on shares issued at the time of joining – even when those shares can’t be easily liquidated. It is difficult to cash in shares unless a private company is sold or floated, leaving the employee to foot the tax bill for the shares, but potentially never see the value.

Deloitte has lodged a submission to Treasury on employee shares schemes and startup companies.

According to Deloitte, "Startup companies often use option arrangements to attract and retain employees and to bring investors and entrepreneurial know-how on board. Our submission has concentrated on the taxation of employee options and the changes necessary to better align the rules governing option arrangements for the startup sector."

Deloitte is focused on companies that fit within its definition of startups: Australian-based business with consolidated revenue of $15 million per annum or less and providing (new) products or services for no more than 10 years in Australia.

Scott Frew, executive chairman of Distribution Central and a vocal advocate of ESOP change, believes the definition is too narrow. The distributor was founded 10 years ago and is now worth around $300 million, "but is still using options to retain and motivate good staff", said Frew.

"It is, for example, ludicrous that my staff, especially those on lower incomes, should pay tax up front on options they may never get to if they leave the company before a control change event," said Frew.

Atlassian is aware of the tax hurdles, said Jeff Diana, and has a generous solution. "We provide stock options to every hire and, in Australia, we pay the tax on the stock options.

"It is not advantageous, there are lots of tax rules we would like to change, but our answer to that is to pay."

The Australian Information Industry Association (AIIA) has also waded into this issue, calling on the Federal government to amend ESOP arrangements "for businesses, irrespective of size and age, commencing with startups and SMEs in order to fast-track the growth of the local digital economy".

AIIA chief executive Suzanne Campbell said: "Australia will not become a hotbed for innovation if we continue to penalise talent and hamper the success of our startups and entrepreneurs."