Employee share scheme - guide for employers

Terms we use

Term	Definition
$1,000 upfront tax concession	A concession available to your employee participating in a taxed-upfront scheme, if the scheme meets certain conditions and their taxable income after adjustments is $180,000 or less.
30-day rule	If your employee disposes of their ESS interest (or the share acquired on exercise of the right) within 30 days after the deferred taxing point, the deferred taxing point becomes the date of that disposal.
Associates	Associates of an individual include people and entities, such as relatives, partners or closely connected companies or trustees of a trust (other than the trustee of an employee share trust). This definition is further expanded in section 318 of the Income Tax Assessment Act 1936.
Cessation time	Cessation time is a term that belongs to the previous law. It does not apply to ESS interests acquired after 30 June 2009. The cessation time for shares is generally the time they are acquired. However there could be restrictions or conditions related to that share that make the cessation time a later date. The cessation time for rights is generally when they are exercised or disposed of, or the time when the employment that the right was received in ceases. However, there may be restrictions or conditions related to the share resulting from exercise of the right that will make the cessation time a later date. Cessation time is defined in sections 139CA, 139CB and 139DSH of the previous law.
Cost base	The cost base of an asset is generally what it costs you. It is made up of five elements: the money you paid or property you gave for the asset the incidental costs of acquiring or selling it (for example, brokerage and stamp duty) costs of owning it (generally this will not apply to shares or units because you will usually have claimed or be entitled to claim these costs as tax deductions) costs associated with increasing or preserving its value, or with installing or moving it the cost to you to preserve or defend your title or rights to it - for example, if you paid a call on shares. The cost base for a share or unit may need to be reduced by the amount of any non-assessable payment you receive from the company or fund. Cost base is explained in Subdivision 110-A of the Income Tax Assessment Act 1997.
Deferred taxing point	If you provide your employees with ESS interests under a tax-deferred scheme and they meet certain conditions, they will not be assessed on the discount received on the ESS interests until the year that the deferred taxing point occurs in. See deferred taxing point: for shares for rights.
Discount	If your employee acquires ESS interests under a taxed-upfront scheme, the discount will be the market value of the ESS interests at acquisition, reduced by the amount the employee paid to acquire the ESS interests. If your employee acquires ESS interests under a tax-deferred scheme, the discount will be the market value of the ESS interests at the deferred taxing point, reduced by the cost base of the ESS interests.
Employee share scheme (ESS)	A scheme that provides ESS interests (shares, stapled securities and rights to shares or stapled securities) in a company are provided to employees (including past or prospective employees and their associates) in relation to the employee's employment.
ESS interests	A beneficial interest in a share in a company, or a beneficial interest in a right to acquire a beneficial interest in a share in a company. ESS interests are shares, stapled securities or rights (including options) to acquire shares or stapled securities.
Indeterminate rights	A right that is acquired by your employee if the entitlement to a share or a specific number of shares may be uncertain.
Law changes, including transitional arrangements	Division 83A of the Income Tax Assessment Act 1997 applies to ESS interests acquired under employee share schemes on or after 1 July 2009 and to some shares or rights acquired before that date. Division 83A of the Income Tax (Transitional Provisions) Act 1997 contains the transitional arrangements that will apply to some shares or rights acquired before 1 July 2009.
Option	An option is a form of right. If you grant an option to your employee, you make an agreement with that employee allowing them to buy a share during a certain time period, for a particular price (the exercise price). The employee then has the right but not the obligation to exercise the option.
Previous law	Division 13A of Part III of the Income Tax Assessment Act 1936 provided for the tax treatment of shares or rights acquired under employee share schemes before it was repealed on 14 December 2009.
Qualifying share or right	Qualifying is a term that belongs to the previous law. It does not apply to ESS interests acquired after 30 June 2009. A share in a company will be a qualifying share if it meets the following requirements: the share is acquired by an employee from an employee share scheme the company is the employee's employer or the employer's holding company the share available from the employee share scheme is an ordinary shares after acquiring the share, the employee does not hold a legal or beneficial interest in more than 5% of the shares in the company after acquiring the share, the employee is not in a position to cast, or control the casting of, more than 5% of the votes at the company's general meeting when the employee acquired the share, at least 75% of the permanent employees of the employer were, or at some earlier time had been, entitled to acquire shares from an employee share scheme of the employer or its holding company. A qualifying right must meet all of the above requirements, except for the last.
Reportable fringe benefits	Benefits you give your employee because of their employment (other than salary and wages) are included as fringe benefits, even if you actually provide them to an associate of the employee. The grossed-up taxable value of those benefits that you record on your employee's payment summary for the income year that corresponds to your FBT year is their reportable fringe benefits amount. The reportable fringe benefits total is the sum of the reportable fringe benefits amounts from different employers. For more information about fringe benefits, refer to the Fringe Benefits Tax Assessment Act 1986.
Reportable employer superannuation contributions	Reportable employer super contributions are those contributions you make for your employee if all of the following apply: your employee influenced the rate or amount of super you contribute for them the contributions are additional to the compulsory contributions you must make under any of the following super guarantee law an industrial agreement the trust deed or governing rules of a super fund a federal, state or territory law.
Reportable superannuation contributions	Reportable super contributions consist of: the employee's deductible personal super contributions (if any) the employee's reportable employer superannuation contributions.
Salary sacrifice arrangements	An arrangement where an ESS interest is provided either: because the employee agreed to acquire the ESS interest in return for a reduction in salary or wages that would not have happened apart from the agreement as part of the employee's remuneration package, in circumstances when it is reasonable to conclude that the employee's salary or wages would be greater if the ESS interest was not part of that package. ESS interests acquired under salary sacrifice arrangements are treated as acquired at a discount.
Taxable income after adjustments	An employee's taxable income after adjustments for the year is the sum of: taxable income reportable fringe benefits total reportable superannuation contributions total net investment loss (below).
Total net investment loss	An employee's total net investment loss is the sum of: the amount that the employee's deductions from financial investments are greater than their income from those investments, for the income year the amount that the employee's rental property deductions are greater than their rental property income, for the income year.