An SMSF technical specialist has recognised an individual’s SMSF cannot acquire stocks by way of a remuneration-based employee share scheme except in certain particular circumstances.
Smarter SMSF education and technical manager Tim Miller noted the arrangements to which he was referring were those where employees are issued company equities as part of their remuneration subject to a performance criteria.
“Often [shares from these types of schemes] often might be issued with all sorts of rules and those rules might say [the employee] can hold them in any entity they choose. Can the SMSF be one of those entities is a question we often get asked,” Miller indicated during a recent SuperGuardian practitioners’ webinar.
“The short answer is no because more often than not that company is not a listed company and definitely [the shares are not business real property for related-party purposes], and most likely [the shares] are not an in-house asset.
“If [they are equities from] a listed company and you’ve been given shares from an employee share scheme [such as this], then under the acquisition of an asset under the related-party rules it’s possible that you can do it.”
According to Miller, even if the shares are being issued from a listed entity, other considerations must also be taken into account from an SMSF compliance perspective.
“Then again, [you have to determine whether the stocks are being recorded] at market value or is there some form of discount involved [and] does that then create a non-arm’s-length income issue?” he asked.
“There are a lot of problems around employee share schemes in that environment.”
He suggested trustees must approach these situations differently to what is currently common practice and determine if they can hold equities distributed in this manner before any transactions take place.
“Primarily [a problem is] created because a lot of times trustees don’t ask the question and they undertake the transaction first,” he indicated.