by Employee Share schemes (ESS) in Australia refer to programs offered by employers that allow employees to acquire shares or options in the company. These schemes have specific tax considerations that both employers and employees should be aware of. Here are some key tax considerations for employee share schemes in Australia:
Timing of Taxation:
The timing of when you are taxed on the shares or options acquired through an employee share scheme depends on the type of scheme:
- Restricted Stock Units (RSUs) and Performance Rights: Taxation generally occurs when the employee’s right to the shares or performance rights is no longer subject to any restrictions or conditions.
- Employee Share Options: Taxation occurs when the employee exercises the options and acquires the underlying shares.
Discounted Shares and Options:
If you receive shares or options at a discount to their market value, the discount is generally treated as assessable income and subject to income tax. The discount is included in your tax return in the financial year when the taxing point occurs.
Tax Concessions for Eligible Startups:
To encourage employee ownership in eligible startups, there are tax concessions available. Under the Employee Share Scheme (ESS) startup concession, eligible employees can defer taxation until the shares are sold or the employee ceases to be employed. Certain criteria need to be met for startups to qualify for these concessions.
Capital Gains Tax (CGT) Consequences:
When you sell the shares acquired through an employee share scheme, you may be subject to capital gains tax. The capital gain or loss is calculated as the difference between the sale price and the cost base of the shares. The cost base typically includes the amount assessed as assessable income when the shares were acquired.
Reporting Obligations:
Employers are required to provide employees with an Employee Share Scheme Statement, which outlines the details of the scheme, including the market value of the shares or options at the time of acquisition. This statement is essential for employees to correctly report their income and capital gains or losses when required.
Deductions for Employee Share Scheme Expenses:
Employees may be eligible to claim certain deductions related to expenses incurred in relation to their employee share scheme participation. These expenses could include brokerage fees, legal fees, and other costs directly related to acquiring or disposing of the shares or options.
Record-Keeping:
It is crucial to keep accurate records of all transactions and documents related to the employee share scheme, including acquisition dates, costs, vesting dates, and sale details. These records will be necessary for correctly calculating tax obligations and reporting to the Australian Taxation Office (ATO).
Seeking Professional Advice:
Employee share schemes can be complex, and the tax implications can vary based on individual circumstances. It is advisable to seek professional advice from a qualified tax professional or accountant who specializes in employee share schemes and understands the specific tax rules and concessions that apply.
