• Employee share schemes – changes to annual reporting

The Australian Tax Office (ATO) has recently implemented key changes to ESS reporting requirements for the income year ended 30 June 2016.

The changes impact the lodgement process, disclosure items for internationally mobile assignees and requirements for awards issued under the recently introduced start-up concessions.

What’s new?

Lodgement method

As with previous years, if a taxing point has occurred on ESS shares or rights during the income year, the provider company must provide an ESS statement to the relevant employee by 14 July 2016 and an ESS annual report to the ATO by 14 August 2016.

For the 2016 financial year onwards, employers will only be able to lodge their ESS annual reports by one of the following methods:

  • Through software (purchased or created) that meets the ATO’s ESS Electronic Reporting Specification; or
  • Through the ATO’s ESS Online Form. This will be available for employers reporting 50 or less employees. The online ESS form is not available to overseas reporters without an ABN.

For both methods, lodgements must be made electronically via the ATO Business Portal or ATO Tax Agent portal, while lodgements in paper or through the existing ATO excel bulk load tool will no longer be available.

The ATO is expected to release updated guidance in the coming weeks on these lodgement methods and confirm the availability of the ESS Online form (currently expected to be available from July 2016).

Expatriate assignees

For the 2016 income year onwards, ESS reporting for internationally mobile employees (both inbound and outbound) will need to specify whether the assessable ESS discount amount calculated and reported is the total gross amount or the Australian-sourced portion only.

The ATO will also give companies the option to report the assignment start and end dates for overseas employment of outbound employees.

While previously it was accepted that employers had the choice to report all or only the Australian portion of the discount, the changes show that the ATO will be using the ESS reporting process as part of their continued focus on data matching involving internationally mobile employees.

Actions

ESS reporting is ordinarily complex and time consuming, particularly for those employers with internationally mobile employees.

The changes are likely to be burdensome for companies who previously lodged the reporting internally to overcome both the software compatibility issues and ensure the new disclosures are accurately included.

In light of these changes, employers should look to:

  • Review the ESS interests on issue and ensure all reportable interests are considered. This may include considering employees of foreign subsidiary companies. An obligation may exist where employees work temporarily in Australia or have been assigned overseas from Australia.
  • Consider whether your payroll software will be compatible with ESS reporting requirements.
  • Given the ATO’s scrutiny on data matching, ensure that accurate information is obtained regarding the additional disclosures for internationally mobile employees. This may include matching data against information provided to the Department of Immigration and Border Protection and available in other tax disclosures (e.g. PAYG payment summaries).
  • As an extension to the statutory reporting obligations, consider providing employees with details on the ESS calculation to provide further clarity on the amounts to be included in their income tax returns. This is particularly true for international assignees who may have been issued ESS shares or rights with supporting information referring only to their home country tax rules.

For more information please contact your usual Grant Thornton advisor, or:

Thomas Isbell
Head of Global Mobility Services
E thomas.isbell@au.gt.com
T +61 2 9286 5689