BARRIER: Squire Sanders’ Louise Boyce says the current tax arrangements are restricting companies’ ability to do business in Australia. Photo: Attila Csaszar

Start-ups seek options on tax

With stock options being taxed immediately, start-ups are being held back.


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This is a known and serious issue for everyone associated with the startup sector and it should be changed. This tax ruling demonstrates a fundamental misunderstanding of the nature of start-ups. These are not small businesses in the traditional sense and are often little more than speculative experiments often forced to incorporate ironically to gain access to R&D tax concessions and to formalise the contributions of founders, investors and early employees who all take huge risks to discover if there is any merit to the experiment they are conducting. The current rules put people in the position of having to pay a large tax bill, often without having the cash to do it, based on a valuation that's completely arbitrary and not traded on any market anywhere. If the valuation drops rather than goes up in the future, you don't get the tax you paid back either. I can't see how this is either fair or motivates anyone to innovate.

I think there needs to be an overarching review of laws for startups - a separate one which can incorporate: 1. Tax breaks for a few years for startups in specific areas 2. A waiver of tax on options for startups 3. A startup visa - to encourage more inflow of talents to Australia 4. Tax Incentive for Angels investing in startups 5. Deductions for some expenses such as rental for co-working space etc for startups. So yes, I am all for the review.

The web startup environment in Australia and specifically Perth is phenomenal, you just need to attend the next GovHack or StartupWeekend to witness some of the amazing talent we have on tap. However the next steps of gaining cash to employee these individuals or start building the business is often stymied by outdated taxation laws and stock option alternatives that make starting up even harder than it ought to be. In recent times I feel this has been glossed over due to the mining industry particularly in Perth attracting huge dollars relatively speaking and not feeling the same level of pain as us in IT startups. As we near the mining capex cliff and money starts looking for other investments the realities of an out-dated system are starting to do some serious damage to the next generation of IT based businesses, with many headed overseas to find money and kinder terms for their existing and future shareholders. Our business has customers all over the world and as we continue to grow and the need to find further capital becomes apparent we are seriously considering moving the business to other jurisdictions to find better terms. We are no longer limited by the geographical boundaries that once existed and the other traditional advantages of operating in Australia such as having a safe economy and good legal system continue to be eroded as other countries increase their own standards in these areas or ours begins to deteriorate. The current government has already flagged they don't understand the needs of the tech industry through the NBN policy decisions they have made and I genuinely hope this doesn't further extend to a 'do nothing' approach in the upcoming budget and throughout the rest of their term.

Yes not having a tax effective way to issue incentive shares to key staff is a huge problem for us. I want to do it, the company needs to lock these guys in, and they want it too but we can't do it without creating a tax burden for them. We are a company based on Intellectual Property and know how so these guys are crucially important to the business. The Australian government can easily improve the structure with a few simple changes. It's not rocket science and its needed to stimulate entrepreneurial endeavours.

Very surprising to hear Australia lagging behind the US and even the UK on this issue. A quick Google shows the average salaries of developers at Series A funded startups to be way in excess of what a pre-seed/seed stage startup can afford. Stock option schemes are an absolute must to allow startups to attract the kind of talent they need to succeed!

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