Maximise your employee shares
Participating in an employee share plan enables you to benefit from the company's future growth and can make up a signification part of your current and future financial strategy.
Did you know there are some smart things you could do to make your investment more tax effective once the shares have reached the end of the vesting period and are available to you?
Reduce tax on investment earnings
You could: transfer the shares to a spouse who earns less than you. By doing this, your spouse could pay less tax on future dividends and less capital gains tax when they sell the shares.
However: you'll need to take into account the impact of dividends and if this will inadvertently push your spouse into a higher tax bracket, negating the benefits of the strategy.
Manage your risk
You could: sell the shares in your employer's plan and buy a different investment, if the shares represent a significant portion of your wealth, enabling you to diversify your portfolio. And if you invest in a lower income spouse's name, you could make significant ongoing tax savings.
However: when deciding on where to purchase additional shares, it's important to consider your risk appetite as well as the impact on the overall balance of your portfolio.
Replace inefficient debt with efficient debt
If you have a home loan, you could: sell the shares, use the funds to recycle the debt through your home loan and into a more tax-efficient investment loan and invest the borrowed money. This allows you to convert some of your non-tax deductible home loan into a tax-deductible investment loan, while maintaining the amount invested in the sharemarket.
However: if you do this and buy back the same asset, the Australian Tax Office may consider this a scheme to obtain a tax benefit and seek to apply penalties and deny your interest tax deduction.
Consider super's long-term tax benefits
You could: sell the shares and use the money to make a super contribution. Or, if your super is run through a self-managed fund or discretionary master trust, you could transfer the shares into your fund by making what's known as an in specie contribution. By using either of these strategies, you can benefit from the fact that earnings in super are generally taxed at a maximum rate of 15%, not your marginal rate of up to 46.5%.
However: you'll need to be mindful of the relevant caps on super contributions to avoid incurring penalties.
Note: you should also keep in mind that if you sell or transfer any shares, you may have to pay capital gains tax (CGT). You could, however, use a range of strategies to manage CGT.
To understand if these opportunities are beneficial for your needs - you should seek advice.
Find out moreFor more information on how MLC can help you seek advice, or for any other financial advice needs, get in touch with us or call us on 136 652.