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Craig says: 4 April 2022 at 15:35 I have the option to participate in an employee share option scheme, but I'm a little unclear on the tax implications. I high-level view is as follows: Options will be granted at an agreed price (e.g. R1) The options will vest over a four year period (annually) Once vested, I would be able to exercise the right to purchase and retain shares or sell to a willing buyer because the company is private, it may not always be easy to find a willing buyer (e.g. At the end of each year), and I may also not have funds available to purchase the shares myself. My main question is around when would I become liable for tax? Am I automatically taxed at the date of the options vesting (but not exercised)? If so, is there some way around this to delay the "vesting" to coincide with the exercising of the option? |
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TaxTim says: 7 April 2022 at 7:27 When the options “vest” or the Participant realises the Shares, any gains will be deemed remuneration and taxed as income in the hands of the Participant at his or her marginal income tax rate. When the options vest, you become entitled to the shares. The gains are deemed to be remuneration and they will be taxed as income at your marginal rate of tax (just like your salary). The gain is calculated by taking market value at vesting date less purchase price of options. When you sell the shares, the gains will be taxed - you will be liable for the Capital Gains Tax on the difference in the value of the shares at vesting date and when you sold them. It is possible to delay vesting until there is a “liquidity event” such as a takeover or initial public offering. It is important you discuss these Scheme rules with your company so that you are not faced with annual cash outflows. These contracts can get complicated, it would be best to seek legal advice from someone who is an expert in putting together these types of schemes. |
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