Employee share scheme - guide for employers

Taxed-upfront schemes

Taxed-upfront scheme - eligible for $1,000 reduction

In addition to the general conditions, the ESS and your employees must meet the following specific conditions to be eligible for the $1,000 reduction:

• your employee must not have a real risk of forfeiting the ESS interest under the conditions of the scheme
• the scheme must be operated so that all your employees must hold the ESS interest (or any share acquired on exercise of an ESS interest that is a right) for three years or until your employee ceases employment
• the scheme must be offered on a non-discriminatory basis to at least 75% of your Australian-resident permanent employees with three years service.

Your employee must also meet the income test to access the $1,000 reduction. Under the income test, your employee's taxable income (after adjustments) for the income year must be $180,000 or less.

As an employer, you will not be able to determine the taxable income (after adjustments) of your employees and; therefore, whether they will be eligible for the $1,000 reduction. However, you need to advise them whether the scheme that they are participating in meets the other eligibility criteria.

Example 2: Taxed-upfront scheme - eligible for reduction

Matt works for Core Bank Ltd and acquired 600 shares in Core Bank Ltd under an ESS on 4 August 2010.

The total market value of the shares is $3,600. Matt paid $1,200 to purchase the shares; therefore, he acquires the shares for a discount of $2,400 ($3,600 less $1,200).

On 7 July 2011 Matt's employer, Core Bank Ltd, gives Matt an ESS statement as follows:

As Matt has provided his TFN to Core Bank Ltd, there is no amount shown in the 'TFN amounts withheld from discounts' field on Matt's ESS statement.

Matt has to complete item 12 Employee share schemes on his 2011 tax return. He is eligible for the upfront concession of $1,000 as the scheme, Matt's personal circumstances and his taxable income after adjustments, all meet the conditions. He writes:

• $2,400 at label D Discount from taxed upfront schemes - eligible for reduction
• $1,400 ($2,400 discount less $1,000 concession) at label B Total assessable discount amount, as Matt has no other ESS interests.

Core Bank Ltd lodges an ESS annual report showing all reportable ESS data for their employees with us by 14 August 2011.

Core Bank Ltd includes the following information about Matt in the report:

• the number of shares acquired, 600, at Number of ESS interests from taxed upfront schemes eligible for reduction
• $2,400 at Discount from taxed upfront schemes - eligible for reduction.

As Core Bank Ltd will not know Matt's taxable income after adjustments, they report the discount as $2,400, ignoring the $1,000 concession.

Timeline of events

Date	Event
4 August 2010	Matt acquires 600 shares with a total market value of $3,600.
	Matt pays Core Bank Ltd $1,200.
	Matt acquires the shares for a $2,400 discount.
7 July 2011	Core Bank Ltd gives Matt his ESS statement.
14 August 2011	Core Bank Ltd lodges a completed ESS annual report with us.

Example 3: Taxed upfront scheme - not eligible for reduction (shares)

Liam works for Starstruck Ltd and acquires 800 shares in Starstruck Ltd under an ESS on 23 September 2010.

The total market value of the shares on that day is $4,800. Liam paid $3,900 to purchase the shares; therefore, he acquires the shares for a discount of $900 ($4,800 less $3,900).

On 9 July 2011, Starstruck Ltd gives Liam an ESS statement as follows:

Liam has to complete item 12 Employee share schemes on his 2011 tax return. He writes:

• $900 at label E Discount from taxed upfront schemes - not eligible for reduction
• $900 at label B Total assessable discount amount, as he has no other ESS interests.

Starstruck Ltd will need to include the following information about Liam in the ESS annual report:

• the number of shares acquired, 800, at Number of ESS interests from taxed upfront schemes not eligible for reduction
• $900 at Discount from taxed upfront schemes - not eligible for reduction.

Timeline of events

Date	Event
23 September 2010	Liam acquires 800 shares with a total market value of $4,800.
	Liam pays Starstruck Ltd $3,900.
	Liam acquires the shares for a discount of $900.
9 July 2011	Starstruck Ltd gives Liam his ESS statement.
11 August 2011	Starstruck Ltd lodges a completed ESS annual report with us.

Example 4: Taxed upfront scheme - not eligible for reduction (options)

Grace works for Big Ted Ltd and acquires 1,400 options to acquire shares in Big Ted Ltd under an ESS on 10 November 2011. The options have an exercise price of $2.50 each and an expiry date of 10 November 2015.

Grace can exercise some or all of her options, at any time up to the expiry date. For each option she exercises, she will need to pay Big Ted Ltd the exercise price of $2.50.

The market value of each option on 10 November 2011 is $3.40. Therefore, Grace acquires the options for a discount of $1,260 [1,400 options x ($3.40 market value less $2.50 exercise price)].

On 10 July 2012, Big Ted Ltd gives Grace an ESS statement as follows:

Grace has to complete item 12 Employee share schemes on her 2012 tax return. She writes:

• $1,260 at label E Discount from taxed upfront schemes - not eligible for reduction
• $1,260 at label B Total assessable discount amount, as Grace has no other ESS interests.

Big Ted Ltd will need to include the following information about Grace in their ESS annual report:

• the number of options acquired, 1,400, at Number of ESS interests from taxed upfront schemes not eligible for reduction
• $1,260 at Discount from taxed upfront schemes - not eligible for reduction.

Timeline of events

Date	Event
10 November 2011	Grace acquires 1,400 options, with an exercise price of $2.50 each and an expiry date of 10 November 2014.
	The market value of each option is $3.40.
	Grace acquires the options for a discount of $1,260.
10 July 2012	Big Ted Ltd gives Grace her ESS statement.
30 July 2012	Grace includes the discount of $1,260 on her 2011 tax return and lodges it with us.
11 August 2012	Big Ted Ltd lodges a completed ESS annual report with us.