My employee has to pay a big tax bill and it’s my fault. Help!

Dear Aunty B,

My employee has just come to me after seeing their accountant over the Christmas break and has a big tax bill. He is very distressed and says it is my fault because I offered him some shares in the company to keep him when he got a competing offer.

I did this for an employee years ago and they didn’t have to pay the tax until we sold that business. He got a big windfall and is grateful to this day. Our business is struggling and we also had two outlets badly affected by the floods.

I explained to him that we can’t afford to pay the bill and it is actually his responsibility. He seems to think it is my fault and I realised he never actually understood the whole deal. Who is to blame and any suggestions?

In the poo big time

Dear In the poo big time,

There have been big changes in the employee share scheme courtesy of the Labor Government, which means that unless you do a lot of paperwork once the shares or options are issued to staff, a tax event is triggered.

Whose fault is this? The flipping Labor Government who have never created a thing and they simply do not understand entrepreneurship. There is a suspicion that employee share schemes are simply a mechanism to rob the country of revenue. It is ironic, as letting employees own a share of a company is a great way to redistribute wealth and should be a cornerstone of Labor policy.

But what all the new rules mean, is that wonderful entrepreneurs can no longer wander around the streets offering equity around like confetti to attract and retain great employees.

You try telling an employee that they can have a share of the company and in the next breath start listing all the issues that come with it, including a tax liability before the shares are sold.

The first thing to do is present your employee with some options. If the shares are not issued yet, maybe he might choose not to take them up and you could give him a salary increase instead. You should also explore with your accountant whether your company can lend him the money to pay the tax bill. If your employee has less than 5% of your company, there might be a few other ways you can help. But go and see your accountant and get some options.

Good luck!
Your Aunty B

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