Tax file number (TFN) withholding for ESS
The withholding tax rules will not affect you if you have already given your employer a TFN declaration.
If you acquire ESS interests at a discount, withholding tax will apply to your discount amounts unless you give your employer your tax file number (TFN) or Australian business number (ABN) by the end of the financial year in which you are required to include your discount from your ESS interests.
Where withholding tax applies, your employer is required to remit the tax to the Commissioner. The rate of withholding tax is the highest individual tax rate plus the Medicare levy for the relevant financial year. See Individual income tax rates for current tax rates.
As an employee share scheme benefit is not a cash benefit, your employer may recover from you the amount of withholding tax paid. Your employer can do this by offsetting the amount of withholding tax paid against any other amounts owed to you, such as salary and wages.
You can claim a credit for the amount of withholding tax paid on your tax return. The total amount of withholding tax paid for which you can claim a credit will appear on your ESS statement.
Example 2: Taxed upfront scheme - not eligible for reduction, TFN withholding tax
Nadia is employed by Red Bank Ltd and acquires 800 Red Bank Ltd shares in a taxed-upfront scheme not eligible for reduction on 23 September 2009.
The total market value of the shares is $4,800. Nadia is only required to pay $3,600 to purchase the shares; therefore, she receives a discount of $1,200 ($4,800 less $3,600).
By the end of 2009-10 (that is, 30 June 2010) Nadia has not given her TFN to Red Bank Ltd. As a result, Red Bank Ltd must pay withholding tax on the discount given to Nadia. Red Bank Ltd must pay this to the Commissioner no later than 21 days after the end of the financial year.
For 2009-10, the rate of withholding is 46.5%. This means that Red Bank Ltd must pay $558 withholding tax ($1,200 discount multiplied by 46.5%).
Red Bank Ltd may recover the amount of the withholding tax from any amounts owed to Nadia. In this case, Nadia and Red Bank Ltd agree that the amount will be deducted from her next salary payment.
On 9 July 2010 Nadia's employer, Red Bank Ltd, gives Nadia an ESS statement as follows:
On 15 July 2010 Red Bank Ltd sends payment of the $558 withholding tax to the ATO.
Nadia has to complete item 12 Employee share schemes on her 2010 tax return. She writes:
- $1,200 at E Discount from taxed upfront schemes - not eligible for reduction
- $558 at C TFN amounts withheld from discounts, and
- $1,200 at B Total assessable discount amount as Nadia has no other ESS interests.
Nadia lodges her tax return with the ATO at the end of August 2010.
When the ATO assesses Nadia's 2010 tax return, she will receive a tax credit of $558 which is the amount of withholding tax paid by Red Bank Ltd.
Red Bank Ltd includes the following information when reporting Nadia's details in the ESS annual report:
- The number of shares acquired, 800, at Number of ESS interests from taxed upfront schemes not eligible for reduction,
- $1,000 at Discount from taxed upfront schemes - not eligible for reduction, and
- $558 at TFN amounts withheld from discounts.
Date
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Event
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23 September 2009
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Nadia acquires 800 shares with total market value of $4,800.
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Discount of $1,200 offered by Red Bank Ltd
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Nadia pays Red Bank Ltd the discounted amount of $3,600.
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1 July 2010
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Nadia has not quoted her TFN to Red Bank Ltd by the end of the financial year therefore Red Bank Ltd must pay $558 withholding tax on the discount on Nadia's shares. Nadia agrees that the amount will be deducted from her next salary payment.
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9 July 2010
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Red Bank Ltd gives Nadia her ESS statement.
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15 July 2010
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Red Bank Ltd sends payment of the withholding tax to the ATO within 21 days of the end of the financial year.
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11 August 2010
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Red Bank Ltd gives a completed ESS annual report to the ATO by 14 August 2010.
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End of August 2010
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Nadia lodges her tax return.
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Example 3: Tax-deferred scheme, TFN withholding tax
Shane is employed by Blue Ltd and acquires 400 Blue Ltd shares in a tax-deferred scheme on 30 July 2009.
Shane will forfeit the shares if he ceases employment before 22 March 2012. The shares are at a real risk of forfeiture. Shane is only required to pay $1,200 to purchase the shares, which is at a discount to their market value. On 22 March 2012, there is no longer a real risk of Shane forfeiting his shares and the deferred taxing point occurs. The market value of the shares on 22 March 2012 is $2,600. The only cost that Shane has in relation to the shares is the $1,200 that he paid Blue Ltd to acquire the shares. This is the cost base for Shane's shares. Therefore, the amount to be included at the deferred taxing point is $1,400 ($2,600 less $1,200). This amount is also referred to as the discount.
By the end of the 2011-12 financial year, Shane has not quoted his TFN to Blue Ltd. As a result, Blue Ltd must pay withholding tax on the amount (the discount). Blue Ltd must pay this to the Commissioner no later than 21 days after the end of the financial year.
For the purpose of this example, let us assume that for 2011-12 the rate of withholding tax is 46.5%. Thus Blue Ltd must pay withholding tax of $651($1,400 discount multiplied by 46.5%).
Blue Ltd may recover the amount of the withholding tax from any amounts owed to Shane. In this case, Shane and Blue Ltd agree that the amount will be deducted from his next wage payment.
On 12 July 2012 Blue Ltd gives Shane an ESS statement as follows:
On 18 July 2012 Blue Ltd sends payment of the $651 withholding tax to the ATO.
Shane has to complete item 12 Employee share schemes on his 2012 tax return. He writes:
- $1,400 at F Discount from deferral schemes
- $651 at C TFN amounts withheld from discounts
- $1,400 at B Total assessable discount amount as Shane has no other ESS interests.
Shane lodges his tax return with the ATO at the end of September 2012.
When the ATO assesses Shane's 2012 tax return, he will receive a tax credit of $651, which is the amount of withholding tax paid by Blue Ltd.
Blue Ltd must include the following information when reporting Shane's details in their ESS annual report:
- $1,400 at Discount from deferral schemes,
- 400 at Number of ESS interests with a deferred taxing point during the year, and
- $651 at TFN amounts withheld from discounts.
Date
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Event
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30 July 2009
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Shane acquires 400 shares.
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Shane pays Blue Ltd $1,200.
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22 March 2012
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The deferred taxing point occurs. The market value of the shares is $2,600 and the cost base is $1,200, so the amount to be included in Shane's assessable income (also referred to as the discount) is $1,400.
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1 July 2012
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Shane has not given his TFN to Blue Ltd by the end of the financial year (30 June 2012) therefore Blue Ltd must pay withholding tax of $651 on the discount. Shane agrees that this amount will be deducted from his next wages payment.
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18 July 2012
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Blue Ltd sends payment of the withholding tax to the ATO within 21 days of the end of the financial year.
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11 August 2012
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Blue Ltd gives a completed ESS annual report to the ATO by 14 August 2010.
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End of September 2012
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Shane lodges his tax return.
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Last Modified: Monday, 28 June 2010