What are the Tax Implications of Gifting Private Company Shares to an Employee?
The tax concessions for employee share plans in Australia are quite generous. However, they’re also currently being reviewed through a government inquiry to see if they can be further improved.
The existing rules allow employers to give $1,000 of shares to an employee who earns less than $180,000 (without any taxation effect for either the employee or the employer). This is a good start but it’s really not enough to attract and retain any employee.
In a similar way, employees are also able to salary sacrifice up to $5,000 per annum (this means to contribute $5,000 to an employee share plan pretax) a similar way to a salary sacrifice contribution to a superannuation fund, this is a more meaningful benefit and would allow employees to acquire shares tax effectively. The current government inquiry is considering increasing this limit from $5,000 – $10,000 (though this has not been finalised).
If shares are sold to employees (rather than gifted) then the rules are fairly strict on what conditions those shares can be sold. For example, if the share is worth $100 then you’re able to sell that to your employee with a discount of up to 15% – $85 (but nothing below this) to the market value of the shares. It is important to note, however, that any discount will ultimately be taxable income to the employee (though this can be deferred under the current rules for up to 15 years).
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