When the standard schemes are closed to you
You own 40% of the company you founded, which means the tax concessions your own staff enjoy on their options are closed to you. The rules that make employee equity cheap were written for employees, and you are not one.
You are not alone in falling outside the standard schemes. The company that has grown past the start-up limits but still needs to hand out upside. The consultant who has been your most important person for five years without ever being on the payroll. The family office that wants its chief investment officer thinking like an owner without putting an outsider on the family register. Four different situations, one shared problem: the ordinary answers do not fit, and the alternatives each carry a trap that surfaces years later.
Premium priced options: the founder's alternative
A premium priced option has an exercise price set well above the current value of a share. You are buying pure upside: the option pays off only if the company grows past the hurdle. Depending on the exercise price, the option term and the applicable statutory valuation method, a genuinely premium priced unlisted option may have a nil tax value at grant, meaning no tax when it is issued, with the CGT rules generally taking over afterwards.
A short example. You are the 40% founder, blocked from the start-up rules. The company grants you options exercisable at $2.50 a share when a share is worth $1. On a supportable valuation and appropriate terms, nothing is taxed at grant. Three years later the company is sold at $6 a share. You exercise and sell, and your $3.50 a share profit is a capital gain, not salary.
Three cautions before you rely on that example. The share valuation and the option terms must be established contemporaneously at grant, because an aggressive valuation that understates the share price undermines the whole arrangement. The employer’s ESS reporting position for the grant should be addressed expressly, not left silent. And the CGT discount is a separate question from capital treatment: outside the start-up concession, the 12-month holding period for shares acquired on exercise generally starts when the shares are acquired, not when the option was granted, so exercising immediately before a sale may produce a capital gain without the 50% discount. The exit sequence needs planning years, not weeks, ahead.
Giving equity to a contractor: resolve the service analysis first
You want to give equity to a consultant who bills through his own company. The common assumption is that because he is not an employee, the employee share scheme rules cannot reach him. That assumption is often wrong. The rules extend to individuals providing services under employment-like arrangements, and the ATO has taken an expansive view of when an individual working through his own company or trust is in such a relationship with the company receiving the services.
Where services are supplied through the contractor’s company or trust, the first question is whether the law treats the individual as being in an employment-like arrangement with your company. The personal services income rules and the contractual chain can affect that analysis, and the answer is fact-dependent. It must be resolved before any equity is granted, because it determines which set of tax rules the grant falls under. This cuts both ways: the deemed employment rules can bring a key contractor inside concessions you want him to have, or catch a structure that was relying on the rules not applying.
Value Shifting
Here is the issue almost nobody prices in. When your company issues shares to staff at a discount, economic value can move from your existing shares into theirs. The value shifting rules can then adjust the tax values of the affected interests and, in some cases, produce an immediate gain for you, the existing controller, even though you sold nothing and received nothing.
Control tests and de minimis thresholds take many arrangements outside the regime, but they must be tested, not assumed. A private company with a controlling shareholder, which is to say your company, issuing meaningful discounted equity to staff, is exactly the profile the rules can reach. If you control your company and the equity being granted is worth real money, this belongs in the planning, not in a footnote afterwards.
Family offices: three ways to reward staff without giving away control
Perth’s private wealth increasingly sits in family offices, and they compete for the same investment talent as the institutional funds on St Georges Terrace without being able to offer listed equity. Three structures do most of the work.
A phantom plan delivers the economics of equity in cash. The plan tracks the value of a defined pool of family assets, and the executive is paid when hurdles are met. Payments are ordinarily treated as employment remuneration, with PAYG withholding and potentially payroll tax and superannuation obligations, the superannuation result depending on whether the payment forms part of ordinary time earnings.
There is no CGT discount. In exchange you get complete flexibility: no outsider ever appears on a register, the plan can track exactly the assets you choose, and payments can be timed to milestones with the hurdles reset afterwards. For rewarding an executive who manages assets your family already owns, the phantom plan is often the right answer despite the tax cost.
A direct employee share scheme suits a family office holding a significant stake in an operating company.
The deemed employment rules above matter here, because your executive providing substantial services to that company can potentially access concessions in respect of its shares. But the design questions must be answered precisely: which company issues the shares, which entity employs or engages the executive, whether the deemed employment rules connect the two, and whether the issuing entity is caught by the integrity rule for companies that predominantly hold or deal in investments. In a family office, that last question is live.
A loan-funded co-invest plan lets senior staff invest alongside the family in specific investments, funded by a limited recourse loan, with growth intended to be taxed under the CGT rules. A discretionary trust ordinarily cannot give the executive a fixed, measurable interest in the family wealth, which is why co-investment usually happens through shares in a company or special purpose vehicle, units or fixed interests in an appropriate trust, or direct ownership of a specified asset, each with its own tax analysis.
The company loan issues that apply to any loan-funded plan, covered in the second article in this series, may also arise, depending on the lender, the investment vehicle, the participant and the rights granted.
The Common Thread
Every structure on this page produces its tax outcome on the day the documents are signed, and every one of them has a version that fails quietly and surfaces at exit. If one of the five rows in the table above is your situation, contact Westcourt. The first step is a defined piece of work: a comparison of the structures open to you, with the after-tax outcome of each modelled under both the current CGT rules and the regime applying from 1 July 2027, and a clear view on whether the deal on the table should be done at all.
This is the final article in a three-part series on staff equity for Perth private companies. Part one covers the start-up concessions for younger companies, and part two covers loan-funded staff buy-ins for established businesses.
Key legislation and guidance: Division 7A of the Income Tax Assessment Act 1936; Division 83A of the Income Tax Assessment Act 1997; section 260A of the Corporations Act 2001.
Australian and Western Australian law current at 10 August 2026.
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