Many employers invite their employees to participate in Employee Share Schemes (ESS), which involves the opportunity to purchase shares in the business at a discount or through a salary sacrifice arrangement.
However whilst the ESS is a valuable initiative that is widely used to help employers attract and retain talent, many of these same organisations are unaware or do not fulfill the annual reporting requirements of an ESS.
With EOFY fast approaching in a year that has seen businesses, accountants & tax professionals overwhelmed with the ongoing raft of Coronavirus Stimulus Measures, it’s crucial to remind organisations of their upcoming ESS reporting obligations so they can avoid incurring ATO penalties for failing to lodge on time.
Employer Share Schemes: The Key Dates For Employers
The key dates for the ESS reporting are as follows:
14 July: Employers need to provide employees with their ESS ATO statements where they have taxable transactions during the financial year. This statement will help employees complete their tax return.
14 August: Employers need to report to the ATO all taxable transactions to using the ATO’s approved software.
Reporting To Your Employee
Employers must provide the ESS statement to employees by 14 July. The information required on the ESS statement includes, but is not limited to, the following:
The discount for ESS interests acquired under each type of tax-upfront scheme;
The discount for ESS interest acquired under a tax-deferred scheme if a taxing point happened during the financial year;
The discount for shares and rights acquired before 1 July 2009 if a cessation time occurred during the financial year; and
The total TFN amount withheld from discounts during the financial year.
Further, if a start-up concession acquisition event occurred, the employee must be provided with the following information about ESS interests acquired during the income year:
Number of ESS interests acquired;
Market value of ESS interests acquired;
Acquisition price of ESS interests that are shares;
Exercise price of ESS interest that are rights; and
Acquisition date of the ESS interests.
Other considerations that need to be taken into account for the employee statement include the 30-day rule in the event an employee disposes of their ESS interest, terminated employees, internationally based employees, ESS interests provided to an associate and any amendments needed.
Reporting to the ATO
Employers must lodge their ESS annual report with the ATO by 14 August. The ATO’s annual ESS reporting requirements are more extensive than the employee statement. Employers must include, but are not limited to the following information for each employee participating in an ESS and for each ESS that the employee is participating in:
A. General Information
Plan identifier: a reference that makes a plan unique within all plans offered by you.
Acquisition date: the date the ESS interests were acquired.
Plan date: the date a taxing point happens to an ESS interest; for a taxed-upfront scheme, this will be the acquisition date; for a tax-deferred scheme, this will be the deferred taxing point.
TFN amounts: withheld from discounts on ESS interests if a taxing point arose during the financial year.
B. For start-up concession schemes (2016 and later financial years)
Number of ESS interests acquired.
Market value of the interests.
Acquisition price of ESS interests that are shares.
Exercise price of ESS interests that are rights.
C. For Taxed-Upfront Schemes
Number of ESS interests acquired under taxed-upfront schemes eligible for reduction during the financial year.
Discount for ESS interests acquired under taxed-upfront schemes eligible for reduction.
Number of ESS interests acquired during the financial year under taxed-upfront schemes not eligible for reduction.
D. For Tax-Deferred Schemes
Number of ESS interests for which a deferred taxing point arose during the financial year.
Discount on the ESS interests for which a deferred taxing point arose during the financial year.
Discount for ESS interests acquired before 1 July 2009 for which a cessation time occurred during the financial year, whether or not the employee has made an election.
Other considerations that need to be taken into account for the ATO report include: any extensions needed for the lodgement of the report, any amendments needed, the 30-day rule in the event an employee disposes of their ESS interest, share trusts and transitional arrangements.
It’s important to note that lodgements for the 2015-16 financial year and onwards will only be accepted electronically in the ATO’s approved software.
ESS reporting can be complex as it involves reporting when certain taxing events in relation to employee equity awards occur. To do this, you first need to understand the potential taxing events for your employee equity plans.
If you are unsure when the taxing points occur for your equity awards and whether you need to report to your employees and the ATO, please contact the team here at Baskin Clarke Priest. We can review your plans and advise if they will have the potential taxing events and/or the reporting obligations to the employees and ATO.