Peter Bardos

Employee share schemes (ESS) are becoming an increasingly popular incentive in Australian workplaces, but both employers and employees should be aware of the significant tax implications these arrangements may carry, Peter Bardos, tax partner at HLB Mann Judd Sydney said.

Such schemes allow employees to benefit from the success of the business while for businesses, ESS can be an effective tool for staff retention and wealth creation in some circumstances. However the tax treatment varies considerably depending on the structure of the scheme, he said.

“Typically, they fall into three categories: taxed-upfront schemes, tax-deferred schemes and start-up concessions,” Mr Bardos said.

“Many employees don’t realise that the discount they receive on the shares issued from the scheme is often treated as taxable income upfront, which can create cash flow challenges.

“This is particularly relevant for standard employee share purchase plans where shares are offered below market value.”

Mr Bardos said a major risk to ESS is that many employees lack understanding of the fundamental principles, such as how the funds will be sold in the future if the shares aren’t listed on a stock exchange. Additionally, many ESS involve options instead of shares as well as loan arrangements.

“Employers will usually seek professional advice to ensure an efficient outcomes for employees, however they should seek their own independent advice to understand their personal circumstances,” Mr Bardos said.

“We have seen unfortunate cases where employees have held shares that have eventually become worthless.

“Any shares should be considered as any other investment and form part of a balanced investment approach, especially once any sale restrictions are lifted.”

Mr Bardos said some schemes qualify for deferred tax treatment, where the tax point is delayed until certain conditions are met, such as the lifting of sale restrictions. However, this deferral can lead to larger tax bills down the track if share values have appreciated significantly.

He said special tax concessions – where eligible employees can avoid having their discounted shares assessed as taxable income – can apply to unlisted Australian startups that are less than 10 years old and have a turnover of less than $50 million.

“The main benefit of the startup concession is that employees are not assessed on any discount and will usually only pay tax on a future sale.  This allows alignment of the cash benefit and tax payment as well as a lower rate of tax where the ESS is held for more than 12 months.”

The tax implications become even more complex for employees of multinational companies, where cross-border rules and foreign tax arrangements may create additional Australian tax obligations.

“Both employers and employees need to carefully consider these tax consequences when implementing or participating in share schemes,” Mr Bardos said.

“Professional advice is crucial to avoid unexpected tax bills and to ensure compliance with all relevant regulations.”

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In Perth, Norman Neill has been appointed managing partner, replacing Lucio Di Giallonardo who was in the role for four years, reflecting the firm’s policy of rotating the position within the partnership. Mr Neill was previously managing partner between 2014 and 2020. He joined HLB Mann Judd as a graduate in 1992 and became a partner in the corporate advisory and audit services division in 2003.

In Sydney, five directors have been promoted as partners, bringing the number of partners in the Sydney firm to twenty-one.

Georgina Ridhalgh joined HLB Mann Judd in 2003 after gaining her Bachelor of Commerce (accounting and finance) from the University of Sydney. She became a director in the business advisory division in 2021, specialising in family businesses and high net worth family groups. Ms Ridhalgh is a member of Chartered Accountants Australia and New Zealand.

James Friend has over 15 years’ audit and advisory experience. He has been with HLB Mann Judd since 2009 and became a director in 2019. He holds a Bachelor of Commerce (accounting) from Macquarie University and is a member of Chartered Accountants Australia and New Zealand.

Vanessa Abboud joined HLB Mann Judd in 2008 as a senior auditor before becoming a director in 2009. She holds a Bachelor of Commerce (accounting) from Macquarie University and is a member of Chartered Accountants Australia and New Zealand.

Peter Bardos is a tax specialist who joined HLB Mann Judd in 2009. He holds a Bachelor of Business, majoring in accounting and finance, with the University of Technology Sydney and is a member of Chartered Accountants Australia and New Zealand as well as a chartered tax adviser with The Tax Institute.

Matthew Levesque-Hocking has 15 years’ experience in business recovery and insolvency and is a Registered Liquidator. He joined HLB Mann Judd in 2005 and became a director in 2019. He holds a Bachelor of Commerce (accounting) from the University of Adelaide and is a member of Chartered Accountants Australia and New Zealand.

HLB Mann Judd Australasian Association chair, Tony Fittler said “The appointment of five partners in Sydney to support our growth is an important milestone. The accounting profession is experiencing a quickly changing environment with all practices becoming more complex.  At the same time, we are managing increased technological capability while remaining strong to our core focus of people and clients.”

In Brisbane, Dony Kurniadi has been appointed partner in the audit and assurance division. He has over 20 years’ experience, starting his career in Indonesia before moving to Australia in 2006 and joining HLB Mann Judd in 2015. He holds a Bachelor of Economics (accounting) from Tarumanagara University in Jakarta, a graduate diploma of chartered accounting from the Chartered Accountants Australia and New Zealand and a graduate certificate in internal auditing from the Institute of Internal Auditors Australia.

HLB Mann Judd has also had several director appointments. Earlier this year Jake van der Hoek was promoted to director in the Adelaide corporate advisory division and Christian Oey from Brisbane was promoted to compliance services director.

These promotions follow the recent appointment of Peter Gardiner in Sydney to the newly created role of corporate development executive.

Mr Gardiner has over 30 years’ experience in the financial services, accounting, and banking industries in Australia, Asia, and the UK.  He first joined HLB Mann Judd Sydney in late 2023 in a business development capacity which has now been formalised into the new role. His main area of focus is driving opportunities in the corporate advisory division as well as providing a framework for best of breed processes within the firm.

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Michael Hutton

After years of increasingly restrictive limitations being imposed on superannuation, the tide has turned on the $2 trillion-plus industry, according to HLB Mann Judd Sydney wealth management partner, Michael Hutton.

Mr Hutton said recent Federal Budget announcements and the passing of some superannuation-focused bills in parliament last week have led to superannuation becoming more attractive as an investment vehicle in accumulating retirement savings.

Changes include those relating to concessional contribution caps, an increasing of the pension limit, work test amendments, and the ability for people to access super under the First Home Super Saver Scheme.

“While the changes are welcome, superannuation is not without limitation and some Australians should consider alternative options to complement their superannuation.

“For wealthy retirees in particular, the tight superannuation contribution limits have reduced the level of wealth they can accumulate in super and thus the amount they can draw in retirement.

“Wealthier families seeking to maintain their standard of living in retirement, and still be able to help their children financially, could seek an alternative strategy, such as the establishing of a personal investment company,” he said.

Mr Hutton said an investment company can receive a loan from the family, invest the funds, and pay tax on earnings at the company tax rate of 30 per cent. While this is higher than the superannuation rate, it’s lower than the highest personal marginal tax rate.

“Once in retirement, people can draw a pension from their superannuation fund, and any additional funds required can be drawn from their investment company. Because the money has been loaned to the company, the funds drawn out each year can be taken tax-free, and applied against the loan account.

“Alternatively, a dividend can be paid to family members with relatively low tax due to the attached franking credits. Unlike a pension-paying superannuation fund, you don’t have to draw money from the company. It can continually reinvest profits generated.

“An investment company is perpetual and makes an ideal investment structure for families looking to build and protect their assets for future generations,” said Mr Hutton.

HLB Mann Judd Sydney tax consulting director, Peter Bardos, agrees, and said families should review their investment structure periodically to ensure its continuing to meet financial goals.

“For example, there are rollovers available that assist in mitigating any tax cost of restructuring, particularly with funds being invested into a company.

“Also, previously, family trusts could enjoy the corporate tax rate while reinvesting funds. Stricter interpretation by the ATO however has resulted in trusts needing to pay these funds to corporate beneficiaries.

“We’ve seen a focus from the ATO on compliance with their interpretation in recent reviews, which is expected to increase with their expanding private group review program,” he said.

Mr Bardos said as a result of these developments, investment companies are increasingly being viewed by families as a simple and effective wealth management vehicle.

“There’s a number of benefits to be derived from having this type of structure in place, including access to the 30 per cent corporate rate (and the possibility of accessing the lower 25 per cent tax rate), discretion to distribute or reinvest some or all the income, and shareholders being able to receive franking credits on dividends.

“Conversely, there are some restrictions to this structure which people will need to carefully consider when weighing up an investment company vis a vis a trust structure. The main one is an investment company doesn’t attract a 50 per cent discount on capital gains made like a trust would.

“Ultimately, using a blend of a trust and company structure can often work well where investments, such as substantial capital growth assets or concessionally taxed assets, are invested in a trust and the balanced portfolio in the investment company. People should consult with a qualified adviser in determining which structure – or structures – are best suited for their current and future needs,” said Mr Bardos.

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