By Michele Muscillo, Partner and Damian O'Connor,
When addressing their end of financial year obligations,
employers need to aware of new changes to the taxation of employee
share scheme (EES) interests, effective from 1 July 2009. These
rules apply to shares, stapled securities and rights to acquire
them (including options), which have been provided at a discount
under an ESS. A significant change under the new legislation is
that employers must issue statements to scheme participants, in
much the same way as PAYG payment summaries are issued. These
statements must be issued by 14 July 2010.
Application of the ESS reporting requirements
This new legislation generally applies to ESS interests provided
from 1 July 2009. However, the new reporting requirements can also
apply to arrangements in place before that time. The new rules
cover not only employees, but also individuals in relationships
similar to employment, such as directors and independent
contractors. The rules also apply to ESS interests acquired by
associates of employees, such as family trusts.
ESS reporting requirements
Reporting to employees Employers are generally required to give
an ESS statement to their employees by 14 July 2010 if:
the ESS interest has been acquired and taxed upfront during the
financial year; or
a deferred taxing point on an ESS interest has arisen during
the financial year (see below).
The 'deferred taxing point' will generally be
whicheveris the earliest of the situations below:
When the employee ceased the employment underwhich they
acquired the right or share;
Seven years after the employee acquired the share or right;
When there is no longer any real risk of forfeiture and the
scheme no longer genuinely restricts the exercise or disposal of
the right or share.
In determining the deferred taxing point, employers should note
the '30 day rule' applies where the employee disposes of
their ESS interest within 30 days of the deferred taxing point. In
this case, the deferred taxing point shifts to become the date of
disposal. Equity interests or rights granted before the
commencement of the new legislation may also be caught by the new
reporting requirements. The ATO has indicated it may allow reduced
reporting requirements in some circumstances for the 2010 financial
year, so that a 'reduced ESS statement' is given to the
employee, and the employer does not need to include the information
in any annual report. Eligibility for this reduced reporting will
need to be carefully worked through.
The statement to employees must include:
the discounts on the ESS interests where a taxing point arose
during the financial year; and
the total tax file number (TFN) amounts withheld from discounts
during the financial year.
Reporting to the ATO
Employers must provide an ESS annual report on the approved ATO
form by 14 August 2010, which must include:
the 'plan identifier' - a unique reference to the
specific plan under which the ESS was offered;
the 'plan date' - the date a taxing point happens to an
ESS interest (for tax up-front this will be the acquisition date,
or for tax-deferred, this will be the deferred taxing point);
TFN amounts withheld from discounts on ESS interests for which
a taxing point arose during the financial year;
the number of ESS interests acquired which were and were not
eligible for the $1,000 reduction;
the number of ESS interests for which a deferred taxing point
arose during the financial year; and
the discounts for ESS interests classified as within the
financial year for the purposes of the new legislation.
The taxation rules dealing with employee equity arrangements are
particularly complex, and the ATO's delay in setting out the
detail of its reporting requirements will create considerable
pressure on employers dealing with other year-end reporting
The ATO's increasing focus on equity arrangements means that
considerable care should be taken to comply with its deadlines, and
to ensure that information is appropriately reported.
If you have any queries about the new tax rules, or would like
our help dealing with the new reporting requirements, please
contact HopgoodGanim's Corporate Advisory and Governance or
Taxation and Revenue specialists.
The income tax treatment of any property lease incentive will vary, depending on the nature of the inducement provided.
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