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Taxed-upfront scheme – $1,000 reduction

Employees may be eligible to reduce the discount amount in their taxable income by up to $1,000.

Last updated 20 December 2015

Under this concession, your employees can reduce the discount amount that must be included in their taxable income by up to $1,000 if:

  • the employee meets an income test
  • both the ESS and the employee meet the specific conditions required.

Employee income test

To be entitled to the $1,000 reduction, your employee's taxable income (after adjustments) for the income year must be $180,000 or less. This is up to the employee to determine; the employer's role is to advise them if the scheme meets the other eligibility criteria.

Specific conditions required

In addition to the general conditions, the ESS 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 (see terms for explanation of real risk of forfeiting)
  • the scheme must be offered on a non-discriminatory basis to at least 75% of your Australian-resident permanent employees with at least three years' service
  • the scheme must be operated so that your employees must hold their ESS interests (or any share acquired as a result of exercising the interest)  
    • for a minimum of three years
    • until they end that employment

ESS interests acquired after 2015

For ESS interests acquired after 30 June 2015, you can make a written request to reduce the minimum holding period. We can allow your request if:

  • the intention of the scheme was that all ESS interests acquired were to be held for three years after acquisition
  • at the earlier time that we allow, all membership interests in the company were disposed of under an arrangement (for example, as a result of a 100% takeover).

Example: Taxed-upfront scheme – eligible for reduction

Core Bank Ltd provides its employee Matt 600 shares under an ESS on 4 August 2015.

The total market value of the shares is $3,600. Matt pays Core Bank Ltd $1,200 to purchase the shares, acquiring the shares for a discount of $2,400 ($3,600 less $1,200).

On 7 July 2016 Core Bank Ltd, gives Matt an ESS statement, with an amount of $2,400 at label D “Discount from taxed upfront schemes – eligible for reduction”.

Core Bank Ltd lodges an ESS annual report showing all reportable ESS data for their employees with us by 14 August 2016.

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.

End of example