This is a very complex area, and one that actually a lot of tax accountants don't know and therefore just get it wrong. There were also rule changes that took effect from 1 July 2009. Some people still think under the old rules.
Don't consider this as tax advice and get some for your situation from an accountant who actually knows the rules. Some general comments: Vesting or Issue at some later date, if it is at a discount to the then value, is likely to cause a tax problem (ie the "discount" received being taxable as ordinary income to the employee). Re the suggestion re setting up a unit trust and lending it the funds, you don't actually need a unit trust, you can just issue the shares and have the company lend the employee the funds via an employee loan plan scheme. Because the employee "pays" for the shares by taking out the loan, there is no discount. The company often gets buyback rights to buy these back at some pre-determined price. Downside is that there are an increased number of shareholders which may make things a little more complicated, but take it into account in the shareholders agreement and think about voting rights and possibly other power of attorney rights to "control" the shares. The loan scheme works well for employees, but possibly not founders. If the founders have really issued themselves shares right upfront, then the value of these shares should be nominal as there is nothing in the entity at that time and they should have actually already vested. If you get granted shares with deferred vesting you must defer the taxing point under a range of circumstances. One of the requirements it that the shares are ordinary shares. So if you feel like some "fun" you can actually read the tax legislation on this, as this is one part that does actually make sense and you can follow it. Also read the ATO guides on this as they are pretty good. By doing this you can understand the exact rules and you can work out some of the "work arounds" to appear to ensure up-front taxing, even if there are deferred vesting dates (that is, if you don't want to use a loan plan, which is probably the easiest way). Good luck. Regards Adrian On Feb 21, 8:10 am, Graham Lea <graham....@belmonttechnology.com.au> wrote: > I'm not a tax professional, but I've had a number of experiences preparing or > reviewing tax returns that included ESOP options. > > What your accountant has said sounds pretty much like what the tax pack says: > if you receive options (or shares) at a discount, the discount is considered > income in the year of allocation and so becomes taxable. However, it always > talks about "the year in which the shares were allocated". In the case of my > options, they vest gradually over a number of years, but they were all > "allocated" the year I received them. I saw no mention of the term "vesting" > in the tax docs. So if all of your shares have been allocated, but just > haven't vested yet, you may be able to tax them all in the first year when > they were worthless. Talk to a pro, though, and consider calling the ATO to > get a definition of "allocated". I know a lot of agents with a query will > call the ATO repeatedly until they get someone who gives them the answer they > want. > > Cheers, > > Graham. > > -- > Graham Lea > gra...@grahamlea.com > > On 19/02/2012, at 11:21 PM, Michael Overell <michael.over...@gmail.com> wrote: > > > > > Do delayed vesting shares leave founders with personal tax > > liabilities? > > > I've struggled to get a clear / detailed answer on this question, > > despite talking to a bunch of people and searching the SB archives. > > Here's hoping a few people in the community can help solve it... > > > Situation: > > - The founders in a company agree to vest their shares over several > > years (eg, as outlined in the Startmate docs > > -http://www.startmate.com.au/financing-docs). > > - The value of these delayed vesting shares is determined upfront > > (effectively zero). > > - At each vesting milestone, the appropriate number of new ordinary > > shares are issued to each founder. > > > Complication: > > - Over time, the value of the company increases. Additional preference > > shares may be issued at a significantly higher price. > > - At each milestone, the delayed vesting shares are now issued at a > > price that represents a steep discount to the 'market value'. > > > An accountant has raised a concern with this situation. He suggests > > that if shares are issued to founders/employees at a discount to > > 'market value', there will be a personal tax liability for those > > people in the year of issue. That is, the difference between issue > > price and market value could be recognised by the ATO as a 'gain', and > > taxed as such. > > > Question: > > Do the founders have a problem here, or is there a way around it? > > Does anyone have actual experience or (informal) advice in this > > situation? > > Note, only interested in Australian tax law (not US). > > > Thanks in advance! > > > Michael Overell > > RecruitLoop > > mich...@recruitloop.com > >+61 408 791 984begin_of_the_skype_highlighting +61 408 791 984 > >http://recruitloop.com.au > > > -- > > You received this message because you are subscribed to the Silicon Beach > > Australia mailing list. Visthttp://siliconbeachaustralia.orgfor more > > > Forum rules > > 1) No lurkers! It is expected that you introduce yourself. > > 2) No jobs postings. You can usehttp://siliconbeachaustralia.org/jobs > > > To post to this group, send email to > > silicon-beach-australia@googlegroups.com > > To unsubscribe from this group, send email to > > silicon-beach-australia+unsubscr...@googlegroups.com > > For more options, visit this group at > >http://groups.google.com/group/silicon-beach-australia?hl=en?hl=en- Hide > >quoted text - > > - Show quoted text - -- You received this message because you are subscribed to the Silicon Beach Australia mailing list. Vist http://siliconbeachaustralia.org for more Forum rules 1) No lurkers! It is expected that you introduce yourself. 2) No jobs postings. You can use http://siliconbeachaustralia.org/jobs To post to this group, send email to silicon-beach-australia@googlegroups.com To unsubscribe from this group, send email to silicon-beach-australia+unsubscr...@googlegroups.com For more options, visit this group at http://groups.google.com/group/silicon-beach-australia?hl=en?hl=en
