Shares or a Cash Bonus? How to Choose in Australia
Offered your bonus in equity instead of cash? How each is taxed, why the timing matters more than the rate, and the risk most people forget to price.
By Timothy Hirou GaschereauPublished 10 min read
⚖️ What you are actually choosing between
On paper it looks like a choice between two versions of the same number. It is not. One is money you have. The other is a claim whose value depends on a share price at some future date you cannot pick.
| Cash bonus | Equity award, tax deferred | |
|---|---|---|
| When you are taxed | The year you receive it | At the deferred taxing point |
| What you can do with it now | Anything, immediately | Nothing, until it vests and you can sell |
| If the share price falls | Irrelevant, you already have the money | The award is worth less, and may still carry a bill |
| Can the 50% CGT discount apply | No, it is ordinary income | Potentially, on gains after the taxing point |
| Main risk | You spend it without a plan | Value and liquidity both depend on one company |
🧾 How each one is taxed
A cash bonus is ordinary income, taxed at your marginal rate in the year you receive it. Nothing exotic. Our guide to bonus tax explains why the withholding on your payslip can look so brutal.
Equity under a deferred scheme is assessed at the deferred taxing point, on the market value then reduced by your cost base, and taxed at your marginal rate in that year. The 2025-26 resident rates, before the 2% Medicare levy:
| Taxable income | Tax on this income |
|---|---|
| $0 to $18,200 | Nil |
| $18,201 to $45,000 | 16c for each $1 over $18,200 |
| $45,001 to $135,000 | $4,288 plus 30c for each $1 over $45,000 |
| $135,001 to $190,000 | $31,288 plus 37c for each $1 over $135,000 |
| $190,001 and over | $51,638 plus 45c for each $1 over $190,000 |
Deferral moves the tax, it does not remove it. If the price rises and your income is similar, you can end up paying more than you would have on the cash.
⏳ The timing difference matters more than the rate
People compare the two options on the tax rate. The rate is usually the same, your marginal rate, in both cases. What actually differs is the year, and what the amount has become by then.
A cash bonus is a known number taxed today. An equity award is an unknown number taxed at an unknown future date, potentially in a year when your income is higher and pushes the whole lot into a higher bracket. Our guide to the taxing point covers exactly when that date arrives.
🎯 Concentration risk
This is the argument people most often skip, and it has nothing to do with tax.
Your salary already depends on your employer. Adding equity means your savings do too. A bad quarter, a restructure or a sector downturn can hit your job security and your portfolio in the same week, which is precisely when you would least like both to move together.
🎯 The essential: If employer equity is already a meaningful slice of your investable assets, taking cash and investing it elsewhere is genuine diversification. Our guide to building a simple portfolio covers where that money could go instead.
💵 When cash is the better answer
- You already hold a lot of employer equity
- You have high-interest debt, where a certain return beats an uncertain one
- You have a near-term goal, a deposit or a wedding, that needs the money to exist
- Your emergency fund is thin
- The company is unlisted and you have no realistic path to selling
📈 When equity is the better answer
- Your cash position is already solid and this is genuinely surplus
- You believe in the company on grounds better than working there
- Your employer equity is currently a small part of your assets
- You can hold past the taxing point to reach the 50% CGT discount
- You will have the cash to pay the bill at the taxing point without selling under pressure
🧭 A framework for deciding
Four questions, in this order.
- What share of my investable assets is already this company? Above a level you are comfortable with, take the cash.
- Do I need this money in the next two years? If yes, take the cash. Equity is not a savings account.
- Will I have cash to pay tax at the taxing point? If not, the equity can force a sale at the worst moment.
- Would I buy this company's shares with my own money today? If not, taking equity is a decision you would not make with cash in hand.
Run the cash option through the income tax calculator so you know the net figure you are actually comparing against. And if the equity is in a startup, our startup ESOP guide covers why the headline valuation deserves scepticism.
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❓ Frequently asked questions
Does taking equity instead of a cash bonus reduce my total tax?
+
Not necessarily, and this is the most common misconception. A tax-deferred scheme changes when you pay, not automatically how much. At the deferred taxing point you are assessed on the market value then, less your cost base, at your marginal rate that year. If the price has risen and your income is similar, you could pay more than you would have on the cash. The outcome depends on facts nobody knows at the time you choose.
What if I already hold a lot of employer shares?
+
That is exactly when to lean toward cash. If employer equity is already a meaningful slice of your investable assets, taking more deepens a risk that is already elevated. Your salary and your savings ride on the same company. Taking cash and investing it elsewhere is a real diversification move. It is not the boring choice, it is the considered one.
Can I get the 50% CGT discount on equity from work?
+
Potentially, on a tax-deferred scheme. The interest is treated as re-acquired at the deferred taxing point, so the 12 month clock runs from there. Hold at least that long afterwards and any further gain above the taxing point value may qualify. On a taxed-upfront scheme the clock starts at acquisition instead.
My employer says the equity is worth the same as the cash. Is that true?
+
The headline number may match, the economic value does not necessarily. Equity value depends on the price when you can actually sell, whether you can hold 12 months for the CGT discount, and whether you have the liquidity to pay tax at the taxing point. A $20,000 award vesting in three years at a lower price is worth less than $20,000. Same value is a starting point, not a guarantee.
What happens at the taxing point if I have already left?
+
Since 1 July 2022, ceasing employment is no longer itself a deferred taxing point. Interests continue toward the next remaining trigger, typically when forfeiture risk and disposal restrictions lift, or 15 years after acquisition. That is a real change from the old rules, so check any advice that predates it.
What is the $1,000 reduction, and would it apply to me?
+
On a taxed-upfront scheme, where your adjusted taxable income is $180,000 or less, up to $1,000 of the discount can be excluded. The scheme must be offered non-discriminatorily to at least 75% of Australian-resident permanent employees with three years of service, there must be no real risk of forfeiture, and a minimum three year holding applies. Many schemes do not qualify, so check your offer documents.
📚 Recommended reading
The Psychology of Money
Morgan Housel
The Psychology of Money
19 short stories on how people actually think and feel about money, not just the maths of it.
The Simple Path to Wealth
JL Collins
The Simple Path to Wealth
The friendliest on-ramp to index investing there is, born from letters a dad wrote his daughter. It makes 'buy the whole market and chill' feel obvious, just map his US fund picks onto Aussie equivalents and super.
The Barefoot Investor
Scott Pape
The Barefoot Investor
Australia's best-selling money book ever. A simple system for accounts, budgeting, debt and a real emergency fund in one.
Some links above are affiliate links. If you buy through them, Snowball Invest may earn a small commission at no extra cost to you. We only recommend books we'd suggest anyway.
Where to next
Sources
- 1. Tax rates for Australian residents, Australian Taxation Office
- 2. Employee share schemes, Australian Taxation Office
- 3. Tax-deferred schemes and the deferred taxing point, Australian Taxation Office
- 4. Taxed-upfront scheme, $1,000 reduction, Australian Taxation Office
- 5. CGT discount, Australian Taxation Office
- 6. ESS and capital gains tax, Australian Taxation Office
- 7. Employee share schemes, Moneysmart (ASIC)
This article contains general information only and does not constitute personal financial or tax advice. Whether cash or equity suits you depends on your assets, your goals and your specific scheme. Speak with a licensed financial adviser or registered tax agent before deciding.
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Explore the calculators →General information only. This article is educational and does not constitute personal financial advice. It does not account for your circumstances. Consider your own situation and seek advice from a licensed adviser before acting. Read our full disclaimer.
Timothy Hirou Gaschereau
Founder of Snowball Invest, not a financial adviser.
I write about what I'm learning myself, because nobody ever taught us how to take control of our own money. It's a skill, not a mystery, and it's never too late to learn it. The best day to start was yesterday, the second best is today.
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