5 Common Challenges of Year-end Employee Share Scheme Reporting

1. Taxable Value of the ESS awards - companies should ensure that they understand how the ESS awards are taxed i.e., at grant, vesting, exercise, when restrictions are lifted, sale or at termination of employment. Companies need to ensure that they use correct data to calculate the taxable value of the ESS awards for employee’s ESS annual statements (due to be provided to employees by 14^th July) and its ESS annual report (due for lodgment with the Australian Tax Office (ATO) by 14 August).

2. ESS reporting for Mobile Employees - the company should decide the basis for ESS reporting for mobile employees – the company can choose to report either a gross ESS income for all employees (local & foreign employees) in the ESS annual report or assessable income for mobile employees (i.e., temporary residents), to exclude the portion of the ESS income related to foreign services.

It is important to report the correct ESS income for mobile employees to avoid an ATO audit which may occur due to mismatch in ESS income between what is reported by the company on the employee’s ESS statement (i.e., gross income) Vs ESS income reported by mobile employees on their Australian returns (i.e., assessable income).

3. 30-day rule - for awards that are sold within 30 days of deferred taxing point, the taxing point should be moved to the date of sale; Is your company aware when an employee sells the shares within 30 days of the taxing point and what actions should be taken if the company is not aware of the sale?

4. Termination of Employment - where employees retain their awards upon termination of employment, they may trigger an ESS taxing point for awards held at termination. This is often omitted by foreign companies and is the most common reason of ESS amendments.   

5. Payroll Tax reporting for ESS awards - employers should be aware of data sharing between the ATO and the State Revenue Offices to correctly report ESS income for payroll tax reporting purposes. The ESS income for payroll tax reporting may be different to the ESS income reported in the company’s ESS annual report especially for terminated employees and mobile employees.

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