Advantages
- Provides deferred tax benefits equivalent to CGT rate of nil on an annual (pre-tax) investment of up to $5,000 in Shares.
- Does not attract FBT.
- Used as a supplement to the $1,000 tax exempt plan, for participants who cannot access that benefit (earn over $180,000).
- Full salary sacrifice approach means no cost to company.
Disadvantages
- Low benefit value ($5,000 investment maximum).
- Unprotected salary sacrifice creates a risk of loss for participants; could “backfire” if shares price falls.
- Participants must select and be held to a fixed future taxing point – inflexible compared to alternatives.
About Deferred Share Plans
DSPs are one of the more frequently used ESOPs offered to general staff in Australia. Under a DSP, employees acquire Shares (other equity instruments cannot be used in this plan) via salary sacrifice. No later than when the Shares are acquired, a disposal restriction period needs to be specified in relation to the Shares, and it cannot be changed once the Shares are acquired. Tax is deferred until the disposal restrictions cease to apply to the Shares and the employee is taxed on the then value of the Shares. Any dividends received on the Shares are taxed in the normal way.
