CGT on deferred payment?

[ChrisS]

About a year ago the private company I work for has started giving stock option grants to long serving employees so we get vested x stock options every month.
The company recently purchased another company and have now offered to purchase x amount of share options back from us at the share price valuation they purchased that company for, it appears to be a favorable deal for the employees.
The downside is, as part of the deal it would be 18 months before I see any money from this transaction. If I leave the company or die or if my contract is terminated before the 18 months I don't get the money.
My question is, would I be liable for CGT from the time the company purchases the share options or when I actually receive the money from the sale in 18 months (if I am still with the company)?

Thanks in advance
Chris

 

[ClubMan]

You are liable for CGT on any capital gain at the time that this gain is crystallised. I don't understand the plan here though. Are they buying the shares back (at a taxable gain to you), say, now, but only paying you the purchase price in 18 months? That sounds odd to me.

I presume you know that the original stock grants (at zero cost you you?) were almost certainly assessable for income tax (and probably PRSI/USC)? But maybe this was already dealt with through payroll at the time?

 

[ChrisS]

You are liable for CGT on any capital gain at the time that this gain is crystallised. I don't understand the plan here though. Are they buying the shares back (at a taxable gain to you), say, now, but only paying you the purchase price in 18 months? That sounds odd to me.

I presume you know that the original stock grants (at zero cost you you?) were almost certainly assessable for income tax (and probably PRSI/USC)? But maybe this was already dealt with through payroll at the time?

Thanks for your response here.
When you say the gain is crystallized, do you mean when I actually get the money in 18 months or when the transaction is initially done?
The delay in payment is strange but as far as its been explained to me they say its an incentive for employees not to leave the company.
As regards the original stock options being taxable, I am not disagreeing but it is hard to assess what value if any it was at the time? We are a private company owned by an investment fund, with no shares or share price. it was made clear at the time that there was no plans to go public. How do you assess a taxable gain that may or may not happen in the future?

 

[ClubMan]

Thanks for your response here.
When you say the gain is crystallized, do you mean when I actually get the money in 18 months or when the transaction is initially done?

I would have assumed the latter but I don't know. While I wouldn't expect the company to give affected employees tax advice, I would expect them to at least apprise them of the tax implications of such a transaction/incentive scheme. Have they not done this?

The delay in payment is strange but as far as its been explained to me they say its an incentive for employees not to leave the company.

Maybe it's a common way to do this. Just that I've never heard of it. But I'm not a tax expert.

As regards the original stock options being taxable, I am not disagreeing but it is hard to assess what value if any it was at the time? We are a private company owned by an investment fund, with no shares or share price. it was made clear at the time that there was no plans to go public. How do you assess a taxable gain that may or may not happen in the future?

I don't know how they would be valued for the purposes of income tax etc. assessment (and, again, I'm assuming that there are no special arrangements here that might mean that different treatment to "normal shares" is applied...) but obviously they are potentially or actually worth something?

Hopefully somebody with more knowledge of the relevant tax issues can comment here for you.

 

[ChrisS]

I would have assumed the latter but I don't know. While I wouldn't expect the company to give affected employees tax advice, I would expect them to at least apprise them of the tax implications of such a transaction/incentive scheme. Have they not done this?

Maybe it's a common way to do this. Just that I've never heard of it. But I'm not a tax expert.

I don't know how they would be valued for the purposes of income tax etc. assessment (and, again, I'm assuming that there are no special arrangements here that might mean that different treatment to "normal shares" is applied...) but obviously they are potentially or actually worth something?

Hopefully somebody with more knowledge of the relevant tax issues can comment here for you.

Thank you very much for your input, its appreciated.

 

[ChrisS]

And to answer your question about our company explaining the tax implication, they haven't, they are just saying go talk to a taxation consultant:mad:

 

[ashambles]

You are liable for CGT on any capital gain at the time that this gain is crystallised. I don't understand the plan here though. Are they buying the shares back (at a taxable gain to you), say, now, but only paying you the purchase price in 18 months? That sounds odd to me.

I presume you know that the original stock grants (at zero cost you you?) were almost certainly assessable for income tax (and probably PRSI/USC)? But maybe this was already dealt with through payroll at the time?

Stock options only become a tax issue when exercised, not when granted.

It sounds like the company is exercising the shares but holding the cash or shares.

It might be ok in the US or elsewhere, here it will require you to pay income tax, PRSI and USC (not CGT) on the exercised value, within 30 days.

If they're exercising, changing them to shares in the other company, and those shares subsequently rise, you'll pay CGT on that rise when you can sell (in addition to the tax+PRSI+USC already paid).

Usually in Ireland due to our RTSO tax rules, stock options are exercised and sold immediately (in the US I think if you hold them for some period the tax is reduced).

 

[ClubMan]

I missed the original reference to options and assumed that the question was about shares. Sorry about that. It may render some of my comments irrelevant!