January 18, 2024

ESS vested share solutions for US tax residents and contracted company executives

Resources Unearthed ESS Vested Share Solutions

Executive share schemes (ESS) can be complex at the best of times, but regulatory requirements by US-based FINRA have meant executives with US tax residency have not been issued their vested shares. It’s taken some time and considerable effort, but we’ve found a solution with the help of an award winning Australian financial services platform.

As ESS problem solving accounts for a significant portion of our Resources Unearthed purpose, we’re also pleased to provide insights for ESS shares and company stock issued to ‘contracted’ mining and resources company executives.

Solution for US tax residents

Mining and resources companies are having difficulty (or are unable) to issue vested shares to US tax residents for no reason other than a requirement by FINRA, the US-based Financial Industry Regulatory Authority, limiting transactions to registered FINRA members only.

As it turns out, most of the key financial services platforms managing mining and resources company shares are not members of FINRA and have indicated no desire to become one.

This has created something of a dilemma as stocks and vested shares form a key part of senior employee and contracted executive remuneration, of which there are usually strict tax compliance and obligations to be met.

Former mining engineer now qualified financial planner and ESS strategist with over 25 years’ experience, Brett Cribb has been working closely (and urgently) with Australian platforms to find a solution for his mining and resources industry clients.

“I’m pleased to report, one of our best has come to the party offering expertise and platform facilities to provide solutions that will enable vested shares to be issued to US tax residents.

“However, the process is neither easy or fast.  It currently takes around four weeks to implement.

“Suffice to say, rather than try and explain things here, I invite mining and resources executives with US tax residency facing this situation to make contact now, as I appreciate the urgency caused by the delay in issuing vested shares,” Brett said.

ESS options for contracted company executives:

While on the subject of company directors and executives who are not directly employed by the company, they too face challenges when it comes to being issued shares and options which fall outside the usual executive share scheme protocols.

Craig Barry, business advisor and tax specialist says, these individuals must implement their own solutions for tax-effectively receiving shares and options as part of their consulting/contracting fee.

“Contracted executives will need to consider the type of entity suitable for tax effectively holding shares and options which for some companies, particularly those in their infancy, as it could be years before the value of those shares are able to be realised.

“While employed executives are often challenged by the complexity and vagaries of ESS tax compliance and strategies, for contracted or non-employed executives there is less available in the way of strategy or planning.

“Effectively the receipt of shares, options or rights by non-employees in return for services rendered becomes a question of how to value the non-cash remuneration they receive as opposed to employees who also need to consider other issues, such as the timing of the tax event.  Non-employees are unable to rely on the valuation shortcuts available in the ESS regulations and as such, they will need to rely on determining the value of the shares and options using complex methods such as the Black-Scholes model or binomial modelling,” Craig said.

Craig went on to note that not only are these valuation methods complex, they are also somewhat subjective.

“In my experience they usually result in higher valuation outcomes than those that might have occurred using the shortcuts in the ESS regulations and there is also less certainty as to whether the ATO will accept the resultant valuation,” he said.

It’s complicated.

Structuring the holding of the company interests

Both Brett and Craig guide mining and resources business leaders to enable them to better understand the types of entities available to them for holding the company interests they receive.  This may include holding shares and options offered as part or perhaps full payment of consulting/contracting fees and for purchasing shares if they wish to contribute to a company’s development funding.

Tax effective structuring options include holding shares in or buying them through a discretionary trust, investment company, in their spouse’s name or a superannuation fund.

Of course, the right solution always depends on individual circumstances.

Successfully advising mining and resources business leaders since 2013, our role involves finding appropriate solutions for innately complex financial matters.

This usually requires a collaborative advice team approach that offers mining and resources industry specific financial planning and ESS expertise, specialised tax advice and legal support for establishing appropriate structures, and along with strategising and implementing effective long term plans.

Next step:

If you are a US tax resident affected by FINRA’s requirements or are a non-employee receiving company non-cash remuneration in need of tax effective solutions, please contact Brett Cribb or Craig Barry.

Please call +61 (0) 7 3007 2000 or email contact@resourcesunearthed.com.au to organise a 20-minute no obligation discussion.
To learn more about Brett, visit this link. To learn more about Craig, visit this link.

Resources Unearthed is a solutions hub that connects senior executives, established professionals and business owners in mining and resources with proven specialist advisers.

Stratus Financial Group and its advisers are Authorised Representatives of Fortnum Private Wealth ABN 54 139 889 535 AFSL 357306. This advice is general and does not take into account your objectives, financial situation or needs. You should not act on it without first obtaining professional financial advice specific to your circumstances.

*Please note: For financial advice and services relating to this matter that are not offered under the Fortnum Private Wealth AFSL, in accordance with our collaborative advice model, when required, such matters are referred to appropriately qualified professionals.


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