Employee share scheme reporting – what to consider before end of financial year

To help you understand reporting requirements and what is needed when submitting to the ATO, we’ve summarised your obligations below. You may wish to lodge this yourself. However, given the complexities and risk, you may find it easier to have this process undertaken on your behalf – in particular if your reporting involves expatriate, internationally mobile and terminated employees. We work with a number of clients on their ESS reporting – from foreign to local, and private to listed – by taking the burden of managing complexities and meeting crucial deadlines off their hands.

What are your obligations?

In Australia, the annual ESS reporting requirement impacts companies that provide a beneficial interest in a share, a right or option to their employees under an ESS. Companies are required to provide a statement to employees (ESS statement) and an annual report to the ATO (ESS annual report) following the end of the tax year. The ESS statement and ESS annual report provides details of any taxing points that have occurred during the tax year (ended 30 June). The ATO makes this available to employees for the preparation of their tax returns and will undertake data matching activity utilising this information.

You must provide an ESS statement to employees by 14 July – and the ESS annual report to the ATO by 14 August. To understand whether you are required to complete ESS reporting, you must first determine whether a taxing point has occurred during the year. Whether an ESS taxing point has occurred depends on a number of factors, including the employee’s ownership level, forfeiture conditions, sales restrictions, the timeframe from issue, sales date, type of plan and whether a share or right/option was issued. It is important not to assume they are the same for all employees or all jurisdictions. 

How do lodgements work?

You can complete your ESS reporting yourself, or reach out to us to prepare the ESS statements and lodge the annual report on your behalf. If completing your ESS reporting yourself, use the ATO’s ESS online form via the Business Portal to lodge the ESS annual report. You will need an ABN and less than 50 employees to report, to use this form. The system is limited on the number of plans and taxing points that can be considered. You will also need to manually provide each individual with an ESS statement in an approved form.

Some common challenges

There are a number of challenges companies may face in fulfilling their ESS reporting obligations – more so than ever considering the increasingly remote and changing workforce patterns the pandemic has created.

Reporting for expatriate or internationally mobile employees is of particular difficulty, as there may be reporting obligations in multiple jurisdictions for the same award. A common mistake in practice is when awards made outside Australia to expatriate/mobile employees are overlooked for Australian reporting purposes.

Employers are required to indicate whether the discount is foreign sourced. It is important to remember that termination of employment leads to a taxing point. This would usually occur when the terminated employee retains their ESS upon the termination of employment (commonly referred to as 'good leavers') and where no earlier taxing point has occurred. For many companies, terminated employees are easily overlooked.

Utilising our bespoke software, we can help you manage the risk and complexity of ESS, prepare and lodge the ESS annual report and help provide the employee statements.