Implication of receiving shares under an Employee Share Scheme

Posted on 13th October 2014 by Ashley Dawson

Employee share schemes (also known as employee share purchase plans or employee equity schemes) give employees shares in the company they work for, or the opportunity to buy to shares in the company. Companies encourage employees to participate in employee shares schemes by offering them discounted shares or rights to acquire shares. The amount of the discount is treated as assessable income for tax purposes.

The discount you receive is worked out as the market value of the shares or rights less any money or other consideration you provided to acquire them. It is calculated at the date you acquired the shares or rights.

The key tax issues to be aware of are:

  • You generally need to include the amount of the discount in your assessable income for the income year you acquire or receive the shares or rights (in some circumstances you can defer this until a later income year);
  • Capital gains tax may apply when you dispose of the shares or rights. If you held the shares or rights for longer than 12 months you may be able to access the 50% general discount.

What can you expect from your employer?

Your employer will tell you if you are eligible to participate in an employee share scheme. They will also tell you whether the scheme meets the criteria for taxed-upfront scheme or tax-deferred scheme.

Your employer will give you an Employee Share Scheme Statement at the end of the financial year. The statement will detail all the shares or rights you acquired throughout the financial year. You will need to provide this statement to your accountant to assist in the preparation of your taxation return.

The government is currently reviewing the legislation on employee share schemes. There is speculation that they are close to finalising new legislation which aims to reduce the tax burden that employees are currently experiencing with the upfront taxing method.

We recommend contacting our office if you would like to discuss your specific circumstances or the new legislative changes.

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