Australian startups give employees cheap options under the employee share scheme startup concession, struck off a low valuation blessed by the ATO. It’s one of the best features of building a company here. What few founders realise is that the moment you hire your first US employee and grant them equity, a different valuation walks in the door – and it quietly changes the deal for everyone who comes after.

In this article, we walk through how the Australian startup concession works, what US 409A rules introduce, why a single valuation usually wins out, and what it means for the strike price your future Australian hires get.

How the Australian startup concession works

Under the startup concession, an option’s exercise price is set at or above the market value of your shares at grant, and the ATO’s safe-harbour methods – in particular the net tangible assets method – often produce a value close to nil once preference shares are taken into account.

The result is cheap strikes, real upside, and tax under the capital gains rules rather than as income. The concession comes with conditions: the company must be unlisted, under ten years old, with group turnover under A$50 million, an Australian-resident employer, an employee holding under 10%, and a three-year minimum hold.

What 409A changes once you hire in the US

Your US employees are US taxpayers, so their options trigger US Section 409A, even when the options are over your Australian parent.

To avoid the 409A penalties – which include immediate income recognition, a 20% penalty tax and interest – the strike must be set at 409A fair market value, determined by an independent appraisal. That number is market-based and is usually well above your Australian safe-harbour value, especially after a priced round.

Why the higher valuation usually wins

Here’s the reset. Once you have a 409A, most companies choose to use it as their single company-wide value. You don’t have to. You can keep pricing your Australian options off the lower ATO value and apply the 409A only to the US grants.

But a much lower Australian number sitting beside a contemporaneous, rigorous 409A invites ATO scrutiny, and investors expect one consistent basis – so in practice the higher number usually wins. It’s a decision, not an automatic outcome.

The important point, and the bit founders get wrong, is that going to the higher number doesn’t break your Australian startup concession. The ATO explicitly protects a valuation that is at or above its safe-harbour result, and for options the only test is that the strike is at least market value, which a higher strike still satisfies. So the concession survives. What changes is the economics: future Australian hires get higher strikes, and therefore less built-in upside, for the same concessional tax treatment.

What happens to existing grants

Your existing grants are safe. Options already issued to your Australian team are locked at their grant-date value, and the new 409A doesn’t reach back to them.

A tactic worth knowing

Some founders run a deliberate Australian grant round at the low safe-harbour value just before the US expansion and the 409A, locking in cheap strikes for key Australian people while they still can.

Two flags worth keeping in mind

The concession itself has a shelf life, falling away once you pass roughly A$50 million in turnover or ten years from incorporation.

A full Delaware flip, where a US company becomes the parent, raises a separate question about whether Australian employees holding options over a US company still qualify.

The takeaway

Hiring in the US resets your valuation basis. Plan your Australian grants around that moment, ideally before it, and get advice on the interaction – especially if a flip is on the cards.

Get advice before you hire your first US employee

Disclaimer: This article is for general informational purposes only and does not constitute financial, legal or tax advice. Please speak with a qualified adviser (hey, that’s us!) before making decisions based on your specific circumstances.