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Taxation generally for ESS

The tax considerations in implementing an employee share scheme (ESS).

Last updated 6 May 2020

When considering the type of employee share scheme (ESS) plan that is offered to employees, one of the considerations may be the tax concessions that are available if the conditions in Division 83A of the Income Tax Assessment Act 1997 are met.

It is also important to make employees aware of the tax consequences of participating in an ESS. This general tax information would usually appear in the offer materials, and be signed off by a tax expert. This material should ensure that employees are clear that they need to seek their own independent advice, based on their personal circumstances.

From a corporate perspective, the company may be entitled to a company tax deduction where shares are purchased on market, or if a tax exempt plan is used. Both new issue shares and shares purchased on market are deductible up to the $1,000 limit per employee, per financial year.

Tax considerations include:

Upward variation

An employee may ask you to increase the amount you withhold from payments to them – for example, to cover tax they will be liable to pay on investment income. Or to cover tax they will be liable to pay on ESS income.

If you agree to this, both you and your employee will enter into a written agreement (in any form that suits your business) to have additional tax withheld.

See also:

Payroll tax

ESS may be subject to state payroll tax. However, the rules vary between states. You will need to check with your local state or territory revenue office to determine how payroll tax may apply to the ESS interests you issue.

Workplace relations and employment law

Workplace relations strategy and relevant employment law should be considered when you are designing your plan. As with any benefit provided to an employee, employers must be aware of the potential impact that this can have on contractual arrangements including any employee awards. Some awards, for example, do not provide for salary sacrifice arrangements.

Information about wages and conditions of employment in Australia, for work that is covered by federal awards and agreements, can be found at Link

Privacy law considerations

It is important that your company and any company that uses personal information in connection with the ESS, has an up-to-date and valid privacy policy. It is also important that there are protocols about the use and storage of personal information.

In some cases, there may be exemptions from Privacy legislation. However, that depends on the particular situation. It may be safest to assume that the privacy rules apply to your ESS.

If you are uncertain about how the privacy legislation applies to your plan, you should seek professional advice.