Employee share scheme - guide for employers

Tax-deferred scheme - salary sacrifice

In addition to the general conditions, the following conditions must be met for the scheme to be considered a tax-deferred scheme - salary sacrifice:

• the ESS interests are shares (or stapled securities) that are acquired under a salary-sacrifice arrangement from you (their employer) or your holding company
• when you provide the shares (or stapled securities), the discount must equal the market value of the shares (or stapled securities)
• the rules governing the scheme must expressly state that the deferred tax arrangement applies to the scheme
• at least 75% of your Australian-resident permanent employees with three years service are, or at some earlier time had been, entitled to acquire ESS interests in you (their employer) or your holding company under an ESS
• any rights acquired under the scheme must be subject to a real risk of forfeiture.

For the tax to be deferred, your employee must not receive more than $5,000 worth of shares (or stapled securities) during the year, under salary-sacrifice arrangements from you (their employer) or your holding company.

Example 5: Tax-deferred scheme - salary sacrifice, $5,000 per employment relationship

During 2010-11, Allan works for two unrelated employers: Nursing Company Ltd and Building Company Ltd. Both companies offer Allan shares in a tax-deferred scheme - salary sacrifice.

Under the scheme offered by Nursing Company Ltd, Allan acquires 100 shares with a total market value of $4,000. Under the scheme offered by Building Company Ltd, Allan acquires 200 shares with a total market value of $5,000. None of the shares acquired under these schemes is subject to a real risk of forfeiture.

Allan is eligible to defer tax for his shares in both Nursing Company Ltd and Building Company Ltd because the market value of the shares acquired under salary sacrifice did not exceed $5,000 under either scheme and the employers, being unrelated, are not part of the same corporate group.

Sections within Tax-deferred schemes

• Tax-deferred scheme - salary sacrifice
• Tax-deferred scheme - real risk of forfeiture
• Deferred taxing point