Employee Shares paid into Discretionary Trust – Reducing Future Capital Gains

If your employer allows, your employee shares/options could be directly paid into a discretionary trust that we set up for you (or that you provide). Our method of setting up a discretionary trust saves $500 in New South Wales Stamp Duty – so we recommend you discuss with us regarding setup of a discretionary Trust if/ when relevant.

Regardless of the structure receiving the shares, the ESS statement (discount on market value) is always provided and taxed to the individual.

But when shares/options/interests are put into Discretionary Trusts, then the future dividends/income and capital gains will be income of the Discretionary Trust.

This means – that the income could be distributed without consequences:

$416 to each child under 18 tax free

Adult Children (can earn total income of $20,541 tax free)

Your Lower Earning Partner/Spouse

A “Bucket” Company

Parents/In-laws (Senior Australians may be eligible to earn total income of $27-30k tax free)

Other Adults in Extended Family The below distributions could be used for living expenses, or could even potentially be

used to contribute into super so the income could be taxed at 15%.

See whether your employee will allow employee shares to be paid into a Family Trust.

Dear [Manager/HR Team/Employee Share team]

My accountant has told me that I could use a Discretionary Trust to hold my Employee Shares/Interests.

The below article provides an idea of how the process works -but my accountant is happy to provide more assistance.

ESS interests acquired by your associates

 

Your associates can be your spouse, child, company or trustee of a trust (other than the trustee of an employee share trust)

The term Employee Share Trust is an “Employer operated Trust” – which is different to a “regular” discretionary trust that we are suggesting.

 

TD 2019/13 Income tax: what is an ’employee share trust’?

Non-Australian Companies may not allow Discretionary Trusts

If you work for a Non-Australian company, they may not allow this.

Example response below from on of our clients who works for a USA based employer.

Unfortunately, they have come back to confirm that EMPLOYER  does not have the ability to grant stock to anyone other than  EMPLOYER employees and so cannot offer any assistance in line with the suggestion below.  USABroker1 and  USABroker2 serve as our plan brokers, and EMPLOYER is unable to directly deposit shares into any other account.

Even if your employer doesn’t allow the discretionary trust for payment of your ESS interests – there are reasons that it still may help your family wealth growth to create one.

Please book a time with me via www.calendly.com/ipas to discuss.