Hello, five years ago the company I worked for was taken over by a big bank, if I stayed five years $100k worth of shares would vest.
I have no idea what to do with them:
Should I cash in and leave money in offset (6%)
Leave them there?
Or sell and invest in another.
I know I’ll owe a large chunk of tax on this, but my set up is about $650k owed on mortgage and about $100k sitting in an offset.
I have three kids, so most of outgoings are on these.
Thank you.
Talk to your financial advisor…..
financial advisor accountant
it really depends on your individual situation, how much liquidity do you want and what is your time frame for investment.
offset gives you the equivalent of 10% gain (6% tax free) with close to zero risk. in this current climate the market is more likely to dive than go up significantly short term so if you need the funds I'd probably keep in offset
keep in mind capital gain tax considerations if you do sell
I support your decision whichever one you make
If you wouldn't buy the shares in the first place, you should sell them when you can and then do with the money what you would do with the money if they just gave you money.
Another factor to look at is your total income now and expected. You might want to look at selling some of the shares each year to reduce the marginal taxes. Obviously only you or your financial advisor would know that. Just pointing out that for some selling a capital asset can be more effective if spread over time. Then of course there are the other considerations as well that others have covered.
If you are going to sell them, consider selling over over a few financial years so it’s not a large whack in tax
Disclaimer, I'm not a financial advisor and I don't know your exact circumstances so take this as general advice. What I would do if I was in this situation is to sell half of the shares. Assuming vesting is a taxable event, you will be liable for up to 45% tax for the market value of the shares (depending on your bracket), so sell half to help cover the tax bill and any remaining goes to the offset account.
Big 4 bank share prices are at an all time high right now, which might not seem like a bad idea to sell it all at this point, however in my opinion, bank shares are the safest shares in the ASX to invest in and they provide good stable returns. So unless you are in desperate need of cash, it's a good long term investment option. Through dividends, they give an annual return of around 5%, which is lower than what you would gain/save if you put the money in offset - but you lose on any future upside to the shares increasing in value. Eventually, interest rates will drop as well, which means that it'll be less favorable to put money in the offset.
Do you have to wait for 1 year after vesting to get the 50% CGT discount?
If you had $0 in shares of this company but the cash, would you now to choose to purchase $100,000 in shares?
Cheers folks. I’ll probably sell and put in offset.
Tax aside (see link below), the issue is about risk tolerance - (1) selling up and putting the proceeds in the offset provides a completely risk free 6% return (but no cash flow benefit unless you can convince the bank to reduce your repayments which is unlikely (to get that result you need to use the sale proceeds to pay off part of the loan)- in fact your cash flow will reduce assuming you are receiving dividends) OR (2) hang on to the shares and ride the ups and downs of shares in major banks - medium term trends for bank shares indicate you may well be on a winner but who knows? the cartel which is the Australian banking system may be disrupted one day and the outsized returns that shareholders have received may melt away. https://www.ato.gov.au/businesses-and-organisations/corporat…