In this article:
Start-Up Employee Share Schemes for Perth Companies
What is this actually worth?
That one comparison contains four separate benefits:
The Trap
Is your company eligible?
Is your employee eligible?
Do your offer terms qualify?
The valuation is the whole game
What this costs your company
One change to watch: CGT reform from 1 July 2027
Common questions
Start-Up Employee Share Schemes for Perth Companies
Qualifying Australian start-ups can grant employees shares or options without employee income tax at grant, vesting or exercise. Tax ordinarily arises under the CGT rules when the shares are eventually sold. The concession is valuable but unforgiving: corporate age, turnover, ownership limits, offer terms and market valuation must all be correct on the day of the grant.
The offer you can make that the miners cannot
Your best engineer has an offer from a listed mining services company in the city. It pays $60,000 more than you can. Every Perth founder competing with resources money knows this conversation. You cannot match the salary. You can offer something a listed company cannot: a real share of the business she is helping you build, on terms where, for a qualifying grant, she pays no tax until the day she sells.
These schemes work, and Perth companies use them every day. Here is exactly what the concession is worth, then the rules that decide whether you get it.
Take a real grant. Your employee receives an option over 1,000 shares at a $1 exercise price, equal to market value on the day. She exercises at year three, when shares are worth $5, and sells at year five for $10. The comparison assumes an ordinary tax-deferred option scheme taxed at exercise, a 47% marginal rate including Medicare levy, no transaction costs and the CGT discount as it currently stands.
Without the concession, she pays $1,880 in tax at exercise, before she has received a single dollar, and another $1,175 at sale: $3,055 in total, across two taxing points. With the concession, nothing happens at grant, vesting or exercise. She pays $2,115 at sale, out of actual sale proceeds.
That one comparison contains four separate benefits:
- No tax bill before there is cash. The $1,880 exercise-year bill disappears entirely. This is the benefit employees feel most, because paying real tax on paper value is what makes equity schemes hated instead of valued.
- Less total tax. On these facts, $2,115 against $3,055, roughly 30% less, because the whole gain is taxed once under the CGT rules rather than partly as income.
- Capital treatment from day one. Her gain sits in the CGT system, where the discount rules apply, instead of being salary by another name.
- A timing rule built for exits. For qualifying start-up options, the 12-month clock for the CGT discount runs from grant, not exercise, so she can exercise the day before your company is sold and still keep the full discount.
And the benefit to you: that difference is what keeps her in her seat when the next recruiter calls, at a cash cost to the company of nothing today.
One point founders often ask about: there is no dollar cap on this concession and no income test on the employee. It is often confused with the separate $1,000 tax-exempt share scheme, which does carry an income test and is far less useful. For the start-up concession, the ceiling is the 10% ownership test below, not the value of the grant or what you pay the person.
The Trap
Now the part that decides whether those numbers are real. If your company, your employee or your offer terms fail one condition, the grant falls back into the ordinary employee share scheme rules. Depending on the plan terms, the discount is then taxed upfront or at a later deferred taxing point, often before your employee has received any sale proceeds. The failures are rarely exotic. You reused a company from an old venture instead of incorporating fresh. You bought a business that came with a 12-year-old company inside it. You reused last year’s valuation. Each of these quietly destroys eligibility, and the problem usually surfaces at exit, when it cannot be fixed.
Is your company eligible?
The tests are about age, size and residence, not whether your business is innovative.
- No company in the relevant corporate group can be listed on a stock exchange at the test date.
- Every company in the relevant corporate group must have been incorporated for less than 10 years. The group for these two tests is the issuing company, its holding companies and the relevant subsidiaries. One old company inside that group taints the whole group.
- Aggregated turnover must not exceed $50 million for the income year before the grant year. This test reaches further than the group tests, because aggregated turnover counts connected entities and affiliates, so a young company inside your wider family group can fail even where its own revenue is small.
- The employing company must be an Australian resident taxpayer. The shares can sit in a foreign parent if your Perth staff are employed by an Australian resident company.
Is your employee eligible?
Your employee, with their associates, must not hold more than 10% of the shares or votes immediately after the grant, counting every option as if exercised, including unvested ones. Two things follow. You, as a founder, almost certainly cannot use these concessions yourself. And an employee whose spouse or family trust already owns equity in your company can fail the 10% test without anyone noticing. Count the associates before you promise anything.
Investment and holding companies need a separate check. A further integrity rule can prevent concessional treatment where the issuing company predominantly holds or deals in shares, securities or other investments. This matters for family groups granting equity out of a holding entity.
Do your offer terms qualify?
Every interest must relate to ordinary shares, so preference shares fail. Options must have an exercise price at least equal to market value at grant. Shares must be discounted by no more than 15% and be offered to at least 75% of permanent staff with three or more years of service. The scheme must stop participants selling for three years, or until they leave if earlier.
The valuation is the whole game
The option concession lives or dies on the exercise price being no less than market value at grant, and a scheme that fails at grant fails forever. Market value must be established at each grant date. A prior valuation can sometimes be refreshed or reconfirmed, but it should never simply be reused without considering what has happened since: trading results, capital raising and commercial events.
The ATO has approved safe harbour valuation methods for unlisted shares, refreshed in a legislative instrument that commenced on 1 October 2025: a valuation by your CFO or a suitable valuer endorsed by the directors, or a net tangible assets method for companies that have raised no more than $10 million in the previous 12 months and meet age or small business conditions. If your balance sheet is lean, the second method can support a very low exercise price, which is exactly what you want.
What this costs your company
The concession is generous to your employee. It is not free to you, and three costs surprise Perth founders.
- First, WA payroll tax. Granting shares or options to staff can count as wages for payroll tax, and the income tax concession does not switch this off. If your business or payroll tax group exceeds the WA threshold, payroll tax can apply to the taxable value of the grant, and the rate, grouping position and the choice between grant and vesting date should be confirmed when the plan is implemented.
- Second, your company generally gets no income tax deduction for the discount it gives, unlike a salary payment.
- Third, equity grants are an accounting expense that reduces your reported profit. If you are grooming the business for sale or watching bank covenants, this belongs in your forecasts.
- None of these changes the answer. They change the modelling, and they should be on the table before you decide the size of the pool.
Tax is not the only workstream
Since October 2022 the Corporations Act has had a dedicated regime for employee share scheme offers, and a grant also needs plan rules, offer documents, board approvals and usually changes to your shareholders agreement. Budget for the legal documents alongside the tax advice, and give the whole project one lead adviser.
One change to watch: CGT reform from 1 July 2027
The numbers above apply the CGT discount as it stands. From 1 July 2027, the 50% discount for individuals and trusts is being replaced with CPI cost base indexation and a 30% minimum tax on gains accruing after that date, with value accrued before 1 July 2027 keeping the discount under transitional rules.
Separately, the Government has proposed an Innovative Business CGT Concession for qualifying start-ups, founders and employee share scheme participants, but it remains subject to consultation and its final scope should not be assumed. Any plan you design now should be modelled under both regimes. Our separate guide to the CGT changes covers the new rules in detail.
Common questions
Specific advice is required. The test refers to the company’s most recent income year before the grant year, which creates an interpretive issue where no preceding income year exists.
No. There is no dollar limit on the grant and no income test on the employee. The practical ceiling is the 10% ownership and voting test, together with the market value rules for the exercise price or discount.
Sometimes. The rules can extend to people in employment-like arrangements, but the personal services income rules can affect the analysis. Part three of this series covers this.
Almost never, because of the 10% test. Premium priced options are usually your alternative, covered in part three.
Thinking about staff equity? Talk to us before anything is signed.
Checking eligibility and documenting a valuation before grant is a small, fixed piece of work. Discovering a failed scheme during due diligence on the sale of your company is a problem that can run to six or seven figures and cannot be fixed. If you are planning to offer equity in the next 12 months, contact Westcourt for a fixed-scope eligibility and valuation review before you put anything in writing. It confirms whether your group qualifies, what it will cost the company, and what the grant needs to look like.
This is the first article in a three-part series on staff equity for Perth private companies. Part two covers loan-funded staff buy-ins for established businesses, and part three covers the alternatives when neither standard scheme fits.
Key legislation and guidance: Division 7A of the Income Tax Assessment Act 1936; Division 83A of the Income Tax Assessment Act 1997; section 260A of the Corporations Act 2001.
Australian and Western Australian law current at 10 August 2026.
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