Employee remuneration trusts

An Employee Remuneration Trust (ERT) arrangement involves a trust being established to facilitate the provision of payments and/or other benefits to employees of an employer. The trustees provide the benefits at the direction of the employer. This strategy is useful to retain and reward employees that are critical and important to the business’s success.

A contribution is deductible to an employer where:

  • It is an irrevocable payment of cash.
  • The employer reasonably expects their business to benefit from the contribution via an improvement in employee performance, morale, efficiency or loyalty, and
  • The contribution is intended to be entirely dissipated in remunerating employees of the business within a relatively short period of time (less than 5 years).

The contributions to a ERT will not be deductible when the contribution is applied for the benefit of owners, controllers or shareholders or when the contribution is capital in nature. The prepayment provisions also need to be considered.