THE EXEMPT SHARE OPTION TRUST - DETAIL

The Exempt Share Option Trust is similar to the plan prepared fro the Department of Employment and Workplace Relations. 

The concept involves the establishment of a special purpose Employee Exempt Share Option Trust (ESOT).  The ESOT receives deductible contributions from the Employer and purchases Share Options from the Employer. Those Share Options are to be held for the benefit of participating Employees.  Employees are in turn issued with entitlements to shares held in the trust.

Under the qualifying tax exempt provision of Division 83A of the Income Tax Assessment Act 1936, those shares must be fully vested, offers must be non-discriminatory and limited to the taxable value of $1,000 per employee per annum.

Shares must be subject to a minimum non sale period of three years or earlier termination of employment.

The shares must be ordinary shares and individual allocations must not exceed 5% of the issued capital of the company.

Shares may be allocated to Employees on the basis of:

• Free allocations;
• Salary sacrifice;
• Equal profit share;
• Equal matching (e.g. a one for one matching, by the employer contributing dollar for dollar (pre-tax) with the employee, is equivalent to a 50% tax deductible discount on the shares); and/or
• Equal profit share.

This plan is one of the most tax effective plan in Australia, but limited to benefits of $1,000 per annum, per Employee.

Income by way of dividends or other income may be declared and distributed from time to time. When benefits are to be realised, that is after expiration of the three year non sale period, or earlier termination of employment, the shares may be distributed to the individuals or sold on their behalf.