Unlisted share options - tax advice needed

[bigTakeover]

Has anyone had any experience with the purchase of unlisted share options?

I have options on 10,000 shares. I have to purchase the options by the middle of next month (March 2008). The shares are going to cost me $2 each and are currently valued at over $20 each. For tax purposes I need to treat the difference in value as income in the year that the options are purchased. So, instead of just having to find $20,000 for the purchase, I am also going to be up for income tax on about $200,000 (assuming that the current value of each share is $22, then [22x10,000] - [2x10,000] = 200,000). I currently earn around $80,000 pa so am expecting the tax on the shares to be around $90,000.

The company has been consistently doing well and I am comfortable with the risk. However, I am unable to trade any of the shares and an IPO is not yet on the horizon, meaning I will have to borrow money in order to meet my tax commitments. I was wondering whether there is any way I am able to reduce the tax, defer the tax or spread it over a greater time period. Any advice would be greatly appreciated.

 

[jaffa]

I have had, and do have, a similar problem in terms of a CGT for shares allocated as part of a performance arrangement.

Are you sure that the difference will be treated as income. I am not a tax accountant, or even an accountant, but you have not realised any profit/income whatsover! You have simply taken up the option.

Assuming you do have some tax debt you may wish to look at some the agricultural funds. The arrangement may have been closed by the tax office but I believe you were at one stage able to claim as a deduction capital investments as an up-front expense under certain very precise circumstances.

Alternatively, what I have done is played around with some speccy investments. Any losses can be offset (partially) against the gain. Alternatively, if you end up ahead you have something to pay some of your tax with!!

Hope this helps. I am sure there are some accountants on the forum who can clarify the situation for you.

Just to be sure, I am no accountant or adviser so be sure to get your own advice.

jaffa

 

[bigTakeover]

Thx Jaffa. It is treated as income unfortunately. It makes things very awkward, as, like you say, no tangible profit has been realised. The ATO ruling is not easy to understand but it looks like an application can be made to the tax office to ease the burden. To my layman's eyes it looks like it might be possible to spread the tax over two years, as long as an application is made before the fact.

I will be seeking professional advice but was hoping someone may be able to enlighten me in the interim.