A new survey conducted by Deloitte Australia and international legal practice Norton Rose has found the tax consequences of issuing share options to employees are so burdensome that, although 94% of companies think employee share options are a valuable way to incentivise employees, only around 1 in 3 companies (37%) had actually issued share options in the last 3 years.
Employee Share Option Plans (ESOPs) are widely regarded as a way for fast growth companies, typically short of revenue and capital, to incentivise employees by providing them with shares in the business. However, in Australia, 81% of those surveyed, agreed that tax reasons were the main consideration for their reluctance to utilise ESOPs. Seventy-five percent of those reluctant to utilise ESOPs, went on to say that “to a great extent”, the complexity of establishing the plans was a further disincentive to issuing share options.
Roan Fryer, Deloitte Tax Partner, said the tax rules associated with ESOPs in Australia make them difficult and expensive to use, in contrast to other jurisdictions such as the USA and UK, where concessional taxation treatment of certain ESOPs (such as the deferral of the taxing point) have allowed businesses to effectively leverage ESOPs, resulting in greater employee participation in ESOPs and, ultimately, staff retention.
Nick Abrahams, Asia Pacific head of the technology practice at Norton Rose, said Deloitte and Norton Rose talked to relevant stakeholders in government to try to get the ESOP rules changed to help Australian companies. “We think it is capable of a solution and we are hopeful the Government will act to change the laws now”, he said.
Source: Deloitte media release, 19 March 2013
[LTN 53, 19/3/13]