The draft Officials Issues Paper, Taxation of Employee Share Schemes: Start-Up Companies, revisits the May 2017 issues paper and introduces updates to better support start-up companies and address evolving market needs.

In CA ANZ’s view, it is important to focus on the key problems as defined (valuation and liquidity) to guide the appropriateness of the proposed taxing events. Deferring the taxing point to ceasing employment, changing residence or a sunset period of 7 years does not effectively address the valuation and liquidity challenges, it simply moves the same issues to a date in the future. According to CA ANZ, taxpayers will still be inclined to choose long-dated options that avoid these taxing points.

CA ANZ’s preferred approach is to tax cash when realised – such as sale of shares or consideration on cancellation – akin to tax on cash remuneration. This approach, which aims to balance equity, administrative simplicity, and flexibility for employees and employers, focuses more on cash realisation rather than economic ownership of the shares.