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What are different options in Law?

What is a good summary of Australian tax law as it pertains to granting options to employees?

  • I gather that unlike in the United States, Australia deems the grant of options to an employee as a capital gains event, and tax is immediately owed upon the unrealised value of the options at the current valuation of the company. e.g. If the company has a $1M valuation and grants you 5% as options, you immediately have a tax bill for $50k. This is despite the fact that the options are just the right to exchange dollars for shares in the future, and this right has not yet been exercised. Is this an accurate summary? Where could I find further information in layman's terms? Are there any workarounds to this for a company that cannot afford to pay market rates for employees, but would like to cover the shortfall with some form of equity benefit? Edit: No, this is not an accurate summary, see

  • Answer:

    I can't offer any great insight into the tax ramifications of an Australian company issuing employee stock options. Most companies I meet with that are interested in issuing options, have ambitions to expand or relocate to SV. With that said, the services of Richard Horton from DLA Piper (http://www.dlapiper.com/richard_horton/) have been recommended to me more than once. Richard is an Australian, SV-based lawyer that works to assist Australian startups make the leap and establish the necessities such as employee stock option agreements. If you have similar ambitions, you may also be interested in the Venture Pipeline service they offer (http://www.venturepipeline.com/). Best of luck!

Peter Alderson at Quora Visit the source

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The summary in the question is not correct - if properly structured there should be no tax liability upfront and only a tax liability on the discount as the options vest. For employee options acquired after 30 June 2009, the point of taxation in most cases would be on vesting of the options rather than upfront. The following two extracts from the ATO website cover some of the key aspects specific to options. If you acquire ESS interests under a tax-deferred scheme, you will be assessed for tax purposes in the year in which the deferred taxing point occurs. The amount assessed will be the market value of the ESS interests at the deferred taxing point, reduced by the cost base of the ESS interests. The deferred taxing point for a right is the earliest of the following times: seven years after you acquired the right when you cease the employment in respect of which you acquired the right when there is no real risk of forfeiting the right and the scheme no longer genuinely restricts disposal of the right when there is no real risk of forfeiting the right or underlying share, and the scheme no longer genuinely restricts exercise of the right or disposal of the resulting share. The ATO [1] has a summary which covers the four different scenarios where tax will apply either upfront or on vesting - and note there are some specific provisions on percentage holdings (e.g. cannot defer the point of taxation to vesting in the case where >5% of the equity is held by a single employee). I am not a lawyer or accountant and this is not legal or tax advice. [1] http://www.ato.gov.au/businesses/content.aspx?menuid=0&doc=%2Fcontent%2F00224640.htm&page=4&H4

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