Don’t forget the new employee share plan reporting and tax withholding requirements

The employee share plan reporting requirements legislated in December 2009 apply to both new grants and to earlier grants with a deferred taxing point after 1 July 2009.  Withholding tax will be payable for employee share plan grants made after 1 July 2009 where employees do not provide their TFN or ABN.


The following is a guide to the new requirements.  The employee share plan tax legislation and explanatory memorandum can be found HERE.


Reporting requirements


1.     The entity that provides employee share scheme (ESS) interests to an employee during a year (which could be the employer or the holding company of the employer) must give a statement to the Commissioner and the employee if:


·         It provided interests to the employee during the year that were taxed under the employee share plan tax rules or


·         It has provided deferred tax interests to the employee (during that income year or a previous income year) and the ESS deferred taxing point for the interests occurred during the year.


2.     Statements must be provided:


·         To the employee by 14 July after the end of the financial year in which the ESS deferred taxing point for the ESS interest occurred


·          To the Commissioner by 14 August after the end of the financial year in which the ESS deferred taxing point for the ESS interest occurred.


The statements must be in a form approved by the Commissioner, include the required information and be provided in the required manner


3.     The reporting requirements apply to:


·       all ESS interests that are provided after 1 July 2009 and taxed upfront


·       any ESS interest on which tax is deferred and the relevant ESS deferred taxing point occurs after 1 July 2009, including ESS interests acquired before 1 July 2009 under the previous employee share scheme tax rules contained in Division 13A of the Income Tax Assessment Act 1936.


4.     As an employer will not know whether or not an employee has elected to be taxed upfront or to defer tax under the previous Division 13A employee share scheme tax rules, the employer is required to report shares or rights with a possible cessation time after 1 July 2009, regardless of whether the shares or rights were in fact taxed upfront.


5.     A provider who becomes aware that information in a statement has materially changed or that information has been omitted from a statement must, within 30 days of becoming aware of the change or omission, either inform the employee and the Commissioner or provide the omitted information to the employee and the Commissioner.


6.     The provider may disregard the 30-day rule for the ESS deferred taxing point for reporting purposes if they are not aware when or whether the employee disposed of the ESS interest within 30 days of the ESS deferred taxing point.


TFN Withholding tax requirements


1.     Withholding tax is payable if an employer provides discounted shares or rights to an employee, and that employee has not quoted their tax file number (TFN) or their Australian Business Number (ABN) to the employer by the end of the relevant income year.   The employer can recover the withheld tax by offsetting the amount against salary or other amounts owed to the employee. 


2.     The requirement for employers to withhold TFN withholding tax in situations where the employee has not quoted their TFN or their ABN to the employer by the end of the income year does not apply to shares and rights granted before 1 July 2009 that have been transitioned into the new rules.  This is because employers will not necessarily know whether or not an employee has elected to be taxed upfront or to defer tax under the Division 13A rules, and so may not know whether they are required to withhold tax.  


3.     Shares or rights on which tax was paid under Division 13A of the ITAA 1936 will continue to be subject to those rules.


Action required


1.     Make sure you have an easily-administered system for tracking all current (and future) employee share plan grants, to facilitate reporting of grants that become taxable each year


2.     Ensure accurate records are kept of which employees have not provided their TFN or ABN

(Where the employer is a subsidiary of the company providing the employee share plan interests, an employee who has made a TFN declaration to their employer is taken to have authorised their employer to inform the provider of their TFN; and where the employer informs the parent-company provider the employee is taken to have quoted their TFN to the provider.)

© Guerdon Associates 2024
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