Tax Deferred Salary Sacrifice Plan

1 February 2021 | Tom Bloomfield

A Tax Deferred Salary Sacrifice Plan allows employees to defer tax payments in relation to their employee share scheme interests to the income year in which the deferred taxing point occurs. It is a common share plan used by listed companies in Australia to reward employees. Key factors of the share plan are described below.

Summary

Generally, the Tax Deferred Salary Sacrifice Plan is utilised by Australian listed companies and can be made available to all their employees globally.

Under the Plan:

An employee can salary sacrifice up to AUD $5,000 per annum, pre-tax. These monies are then used by a company to buy shares on market for the employee.
The employee’s taxable income reduces by the amount they contribute into the Tax Deferred Salary Sacrifice Plan. Shares are then held in holding lock for a 3-year period from the date of allotment.

Conditions

As with any employee equity plan, there are certain obligations and conditions under the plan rules. With a Tax Deferred Salary Sacrifice Plan, these are commonly

Vesting/restrictions – shares are held in holding lock for a 3-year period from the date of allotment, meaning employees cannot sell those shares until after this restricted period expires.
Dividends and voting privileges – full dividend and voting privileges apply to the shares.
Leavers - employees retain their shares. Any remaining holding locks are lifted.

Taxation Considerations

It is important with any employee equity plan to obtain professional tax advice. Broadly, tax points to note under a Tax Deferred Salary Sacrifice Plan include:

Annual employee share scheme tax statements must be issued for Australian employees.
Employees are responsible for their personal tax requirements with respect to their equity.
For Australian employees, shares are taxed upon the expiry of the holding lock.
Companies may be eligible for tax deductions under the plan, for example, by using an Employee Share Scheme Trust to claim a tax deduction.

BoardRoom’s market-leading Employee Equity Plan team has vast experience manging Tax Deferred Salary Sacrifice Plan for multiple listed companies. If you would like to learn more about how this share plan works and how we can help, please do not hesitate to contact us.