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Tax system quirk could hit executive hip pockets

Startup & Venture Capital, Taxation
Executives doing tax
In a comment article published in today’s AFR, tax partner Shaun Cartoon explains how the sharemarket’s roller-coaster ride of the past 12 months has created the “perfect storm for self-inflicted, share schemes tax damage.”

Australia’s employee share scheme reporting rules represent an oddity in the tax system, Shaun writes, whereby employees are expected to entirely self-assess their ESS income.

“The self-assessment mechanism puts significant pressure on employees to make sure they have sufficient cash to pay their tax liability, which often hits home many months later. Well advised employees will often choose to sell a sufficient number of their shares at the taxing point to ensure they have enough cash to pay the tax bill.”

If the share price goes up, an individual who decided not to sell, would be able cover the tax bill by selling a smaller number of shares down the track.

“In a plummeting market, however, the executive could be caught out.”

To read Shaun’s article, click here.

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