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“SCARRABELOTTI recommends remuneration funding as the most effective method of financing Division 13A Exempt and Deferred share plans; these are then reallocated to the share plan which acquires shares on behalf of employer.” |
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Aequum Managing Director
Employee benefits …'“By investing pre-tax dollars in the ESOP, employees acquire (depending on their marginal tax rate) up to twice the number of shares they could have purchased using post-tax savings.” Employer benefits ...“Remuneration funding means, for the employer, a tax deduction to the company for every dollar contributed to the ESOP” Alternative ESOP Funding Mechanisms
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Loan Plans Loan
Plans are fair weather friends. They do well over the long term when
shares are rising. But if prices fall they bite hard.
There is too much potential downside both for the company and
for the employee. For
the employees, if share prices fall, the prices will not cover the
value of the loans made to them. This means that if they sell the
shares, the employees will
have to make up the difference out of their own pockets. For
the company, if it were to waive the employees’ debts, then it would be liable to Fringe Benefits tax (FBT)
on the amounts waived. Also
for the company, there is the consideration that it must carry the
loans on its books as a cost to the capital account. SCARRABELOTTI
does not recommend Loan Plans
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