Securities taxation
When talking about the taxation of securities, it is correct to divide it into several types:
- Securities purchased privately.
- Securities granted to the employee by the employer as part of his position
Taxation of securities purchased privately
Securities purchased in a private framework are taxed by capital gains tax, on the increase in capital created when a financial asset is sold.
A profit or loss is generated on each sale. If a profit is made, the tax is paid immediately, but if a loss is made, the tax is offset against the profits. If the trade is made by one party (for example by the bank) and within one tax year, then the person receives a tax refund automatically.
When a person conducts trade through different entities or his profits and losses were not within one tax year, he must contact a professional entity for the purpose of making a tax return.
Taxation of securities granted to the employee by the employer as part of his position
The RSA (Restricted Share Award) shares granted by the employer are considered part of the salary. An employer must make a withholding tax for the value of the shares according to the employee’s marginal tax. Provided that the employer has a trustee for the shares, the employer will collect the tax on the value of the stock from the employee as soon as the shares are sold or as soon as the stock is released from the trustee, and this instead of collecting the tax at the moment of the grant.
Profit from the sale of shares (difference between the grant price and the purchase price) or profit from the sale of stock options can be taxed according to marginal tax, because part of the salary is exactly the value of the shares. But there is an easy option that allows you to tax according to a capital gain of 25%. In order to benefit from a reduced capital gain tax rate of 25%, all the criteria of section 102 must be met.
The sale of the shares or their release from the trustee must be after at least 24 months from the date of grant.
A company that grants options / blocked shares must appoint a trustee on behalf of the company.
That is, in order to benefit from the section, it is very important to withdraw or sell the securities granted by the employer, only two years after the grant.
For example – if an employee received shares worth NIS 20,000 and there is no expectation of an increase in the value of the share, then even if the employee sells it now, or in two years, the payment will be according to the marginal tax of that year. In a situation where the employee is expecting a salary update, holding the share will come out It is very unaffordable and this is because in two years he will pay a much higher marginal tax on it than the marginal tax he will pay on it today.
Another example is a situation where the employee received options to purchase shares in the amount of 200,000 NIS according to the market price at the time of distribution. After some time, the market price doubled to 400,000 NIS in total value. At the time of the sale, the employee earns NIS 200,000. Such a situation becomes extremely significant for two reasons – first, because of reduced tax rates of 25% compared to marginal tax. Second, because capital gains are not subject to social payments such as social security and health tax.
At Pinko, we have extensive experience in submitting annual reports for owners of capital activities and also in extracting tax refund issues for them.
