Tax rule changes for employee share schemes are a "must have" for new businesses trying to compete against other more favourable global tax regimes.
Business software provider MYOB boss Tim Reed believes amendments announced by the Abbott government on Wednesday may not be important for all small businesses, but are "highly relevant" for start-ups.
"Start-ups in almost every other nation enjoy the ability to be able to reward employee with options, a potential ownership stake in the company," Mr Reed told AAP.
As part of the government's focus on small business in the May budget, employees who are issued with share options from July 1 will be able to defer paying tax until they are exercised and converted into shares, rather than paying tax up front.
Eligible start-up companies will also be offered a tax discount on employee options and share schemes.
The government has extended the maximum time for tax deferral from seven to 15 years, which Small Business Minister Bruce Billson says will give companies more time to build their businesses and succeed.
"Our government knows that our country's tax system should not be an impediment for innovative companies," Mr Billson told parliament.
He said the $200 million cost to the budget over four years from these changes repair the damage done by Labor government amendments in 2009.
These resulted in employees often being forced to pay tax on their options before they get any benefit, causing them to convert their options into shares to immediately sell them.
The government has also flagged extending a promised 1.5 per cent tax cut to all small businesses rather than just those that are incorporated.
Mr Reed says while this is great news, he wants to see how it would work without adding further complexity to the tax system.
Many small businesses and sole traders are taxed through individual income taxation.
It would not only result in two-tier corporate tax rate, but also differing rates for small firms paying income tax.
"The general principle having exemptions to things ... is they have complexity," Mr Reed said.
He said a better approach would be through an accelerated depreciation of assets of small firms, which has worked in the past but was scrapped with the mining tax in the last budget.
"It's a proven winner," Mr Reed said.
Share
