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).

For more information on how you can set up an Employee Share Ownership Plan in your organisation, please contact one of our Succession Advisers here.

Craig West

Managing Director | Succession Plus

Craig West is a strategic accountant who has over 20 years’ experience advising business owners. His background as a CPA in public practice, provided invaluable experience in the key issues of concern to business owners. Following 6 years of study to gain two masters degrees, Craig focused on Capital Gains Tax (CGT) for business sales advising on strategic management of tax issues. This experience formed a very strong view that business owners (and often their advisers) were unprepared and unaware of the steps required to prepare a business for exit.

Craig now acts as a strategic mentor for mid-market business owners and has written four critically acclaimed books on employee incentives, succession planning, asset protection and exit strategies. Craig has conducted numerous seminars and keynote presentations throughout Australia & internationally, including adviser education programs for the Institute of Chartered Accountants and CPA Australia.