Budget Reform 2021: Employee Share Scheme Reform to Assist Startups
The recent federal budget unveiled promising updates for startups and founders, particularly those within technology and digital spaces. The budget primarily focuses on economic recovery and the fallout from the COVID-19 pandemic, which saw a deficit of $161 billion this year. Amongst that, the budget is looking to provide new initiatives and opportunities for startups. While this is by no means an exhaustive overview of the budget, we discuss some of the key impacts for startups and small and medium businesses.
Employee Share Scheme
The Employee Share Scheme (ESS) received a significant revamp in the recent budget reform in a bid to streamline and simplify the process for startups and founders. Though these rules have relaxed somewhat, it should still be advised to seek the assistance of a commercial lawyer for implementing an employee share scheme.
There will also be approximately $550 million in tax incentives for employees under the ESS, providing a boost for startups and founders who want to offer their staff equity. Through the scheme employees will be eligible for special tax treatment or ‘tax concessions’ on shares owned. Prior to the government’s reform, employees were only eligible to the concessions while they were employed at the startup.
The ESS reforms are aimed at stimulating growth for startups and entrepreneurs, allowing founders who do not have the initial capital to acquire employees which will assist in talent retainment and to scale their startup. The changes to the cessation of employment tax will apply to the employee share scheme on or after July 1, 2021 following Royal Assent.
Patent Box Scheme
The government is encouraging investment in Australian medical and biotech technologies by introducing a patent box tax incentive scheme. The $206.4 million investment is designed to reduce taxes on income from innovative research. Australian-owned medical and biotech patents will be taxed at a concessional rate of 17% from July 1, 2022.
Digital Economy Strategy
In a $1.2 billion package under the heading ‘Digital Economy Strategy – Delivering a Modern and Digital Economy to Drive Australia’s Future Prosperity,’ the government will be encouraging the adoption of digital technology to drive employment, wages and productivity. This will include a $111.3 million roll out of the Consumer Data Right (CDR) across the economy, starting with banking, energy and telecommunications.
Small businesses and startups are also being encouraged to adopt digital technologies through a $12.7 million expansion of the Digital Solutions – Australian Small Business Advisory Service. The funding will be used to support an additional 10,000 small businesses and startups to utilise digital technologies and improve their digital capability.
The new reforms will see more than $16 billion in tax cuts for startups and small and medium sized businesses. This will reduce the tax rate from 30% in 2014-15 to 25% from July 1, 2021. The government is also supporting business investment by extending temporary full expensing and temporary loss carry-back until June 30, 2023. This will boost activity and employment and raise the productive capacity of the economy in the future.
The government will invest $1.2 billion to boost the countries’ technology sectors in an effort to encourage business investment and to build digital skills and literacy. The government will also be investing in emerging technologies, including artificial intelligence (AI), quantum computing, robotics and cyber security.
Increasing AusBiz Proposition
In a bid to attract international talent, startups and businesses, the government is introducing a new Global Talent visa and Temporary Activity visa, with the intention of modernising the framework for individual tax residency, encouraging highly skilled individuals to relocate to Australia. The proposition should reduce the time and money startups and businesses spend interacting with the government.
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