The question every owner asks eventually
At some point every private business owner asks the same question: how do I give my best people a real stake in this business without creating a tax disaster for them or for me?
The answer is never “just issue them some shares”. Discounted shares are taxed as income in your employee’s hands, often before they can sell anything, and the grant can create payroll tax, accounting and company law consequences you were never told about. But the question has good answers, and over the past month we have published a three-part series working through each of them for Perth private companies. This page is the map.
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If your company is under 10 years old, unlisted and under $50 million in aggregated turnover, you can grant qualifying employees shares or options with no employee tax at grant, vesting or exercise. Tax arises once, when the shares are sold, with the cash to pay it. It is the most generous equity rule available to Australian private companies and the one thing it never forgives is a shortcut: one failed condition and the whole grant falls back into the ordinary rules. The traps are ordinary commercial history, a recycled company, an acquired old entity, a reused valuation. Part one covers the eligibility tests, what the scheme costs your company, and a worked example of what the concession is worth to your employee.
Once your company is too old or too big for the start-up rules, the standard succession tool is the loan-funded share plan: your key manager buys shares at market value, funded by a company loan that is usually interest-free and limited recourse. Done properly, his upside is taxed as a capital gain and he outlays nothing on day one. Done in the wrong order, the loan can be taxed as an unfranked dividend in his hands. Part two works through the six gates the plan must pass, including the company law approval most tax-only designs miss, and models the numbers on a $500,000 buy-in under both the current CGT rules and the regime applying from 1 July 2027.
Founders over the 10% ownership limit, companies that have aged out but keep growing, key contractors, and family offices all sit outside the standard schemes. Part three compares the alternatives: premium priced options for founders, the deemed employment analysis that decides whether a contractor can join a plan at all, the value shifting rules that can catch you rather than your employee, and the three structures family offices use to reward investment staff without giving away control.
The three things every structure has in common
First, the tax outcome is locked in when the documents are signed, not at exit, and almost none of the failures can be fixed later. Second, every plan designed now straddles the CGT reforms applying from 1 July 2027, so the after-tax result must be modelled under both regimes before any stake is priced. Third, tax is never the only workstream: valuations, company law approvals, plan rules and shareholder agreement changes sit alongside it, and the projects that go wrong are usually the ones with no single lead adviser.
If you are considering any form of staff equity in the next 12 months, contact Westcourt before anything is promised or put in writing. The first step is always a defined piece of work, an eligibility, valuation and structure review matched to your situation, and it costs a fraction of what the same conversation costs after the documents are signed.
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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