Jason Clout writes a piece for the Australian Financial Review where he highlights the possible consequences of using the Employee Share Scheme (ESS) in the SMSF. Executives rally around the idea of bringing in shares/share options into their SMSF for gaining an advantageous tax position.
ESS in SMSF
Startups look for such inclusions because they are dollar-strapped and need cash flow to meet the salary expenses. They feel a good way to retain talented workforce is to attract them through ESS. Financial technology space is one such case in point, cites Clout, where the emerging workforce is being lured with an ESS arrangement.
You need to resolve a host of queries first
Before including ESS in your SMSF, there are a host of questions you need to counter. What is the exact nature of the ESS interest? Is it in the form of stapled security, options or shares? On whom does the tax liability fall- is it the member or the SMSF itself?
Listed shares at market value
Employees often live under the illusion that they can gain from the concessionally taxed environment of Superannuation if they let their SMSF take the ESS interest. It is well known that SMSF trustees cannot indulge in related party transactions and the only time they can do so is when they deal in market value purchase of listed securities. So, to cut it short, whether SMSF can or should acquire an ESS interest also depends on whether a company is a listed one or an unlisted one.
While senior executives can think of the ‘ESS interest’ plan, they should be cautious not to be trapped into big tax bills on a latter day; just the opposite of what they are set out to achieve.
You can read the original article here.
Personal contribution or employer contribution
There is definitely a long line of questions you should answer before trying the “ESS in SMSF” move. If an employee is the member of an SMSF, are the shares procured by the SMSF through ESS a personal contribution or an employer contribution?
If the shares/ share options are procured from a related party, does the event count as an in-specie contribution? These are only a couple of questions which await an answer before you take the ESS plunge.