Employee share scheme - guide for employers

Tax arrangements for employee share schemes

An employee share scheme (ESS) is a scheme that provides ESS interests in a company to employees (including past or prospective employees and their associates) in relation to their employment.

The ESS rules cover not only employees of a company but also individuals in relationships similar to employment, such as directors and independent contractors.

Generally, employment benefits you provide to an employee would be taxed under the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986). However, the law changes specifically exclude ESS interests acquired under an ESS from being taxed as a fringe benefit under the FBTAA 1986.

For ESS interests provided to your employees before 1 July 2009, see Transitional arrangements for an explanation of how law changes affect existing ESSs.

Example 1: ESS interests

Daniel is employed by Blackbooks Ltd. As part of his total employment remuneration package, the company provides Daniel with a beneficial interest in shares in Blackbooks Ltd. The shares are provided at a discount.

The shares that Daniel receives are ESS interests provided under an ESS. As a result, the discount given for the shares Daniel acquired will be taxed under the ESS rules and not under the fringe benefits tax provisions.

Sections within Tax arrangements for employee share schemes

• Types of ESS
• General conditions for concessional tax treatment