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How employee share schemes are taxed in Australia in 2023.

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17 February 2023 Read time: 2 min

 

Ah, the wonderful world of taxes. Everyone’s favourite topic, right? Well, buckle up and get ready for a fun ride as we explore the tax implications of an employee share scheme (ESS) in Australia.

First of all, let’s get one thing straight: tax can be a bit complicated. The taxation of ESS in Australia depends on a number of factors, including the type of scheme, the terms and conditions of the scheme, the value of the shares, and your personal circumstances.

But in general, there are two main tax implications for employee share schemes:

  • Income Tax
  • Capital Gains Tax

 

Income Tax on an employee share scheme.

 

So, what are the income tax implications of an employee share scheme in Australia?

Well, when you receive a share or an option under an ESS, the benefit (i.e. the difference between the shares’ market value and what you paid) is generally treated as assessable income for tax purposes.

Translation: you’ll need to pay income tax on the benefit. Tax is paid at your regular marginal tax rate. Further, it’s due in the year that the shares or options are acquired or become vested.

There are some concessions available for certain types of ESS arrangements. That is – there are ways to reduce the amount of tax you have to pay. For example, if you acquire shares through an employee share acquisition plan (ESAP), you may be able to defer the taxation of the shares until you’re able to sell them. If you choose to go this route, you’ll be taxed at the capital gains tax (CGT) rate instead of your income tax rate, which can be a bit of a relief depending on your circumstances.

 

Capital gains tax (CGT) on Employee Share Scheme.

 

Speaking of CGT, when you sell your ESS shares, you may be liable for CGT on any capital gain made on the shares.

What’s a capital gain, you ask? A capital gain is calculated as the difference between the sale price and the cost of your shares, which includes the amount you paid for the shares plus any associated costs (such as brokerage fees and stamp duty).

But don’t worry, there are some concessions available here too.

CGT concessions and discounts on Employee Share Schemes.

If you hold the shares for at least 12 months before selling them, you may be eligible for the CGT discount which reduces the amount of CGT payable by 50%. And who doesn’t like a half-price deal?

 

Devil in the detail with ESS.

 

Of course, as with all things tax-related, the devil is in the details.

The tax implications of an employee share scheme in Australia can be affected by a range of factors; including the type of scheme, the terms and conditions of the scheme, the size of the company, the value of the shares and your personal circumstances.

Moreover, you’ve got to navigate Australia’s ever-changing tax legislation. So, it’s always a good idea to suss out information from the source (ahem, the ATO). Then, seek professional advice before jumping into an ESS.

In summary, the tax implications of an ESS in Australia can be a bit complicated. But with a bit of planning and professional advice, it’s possible to structure an ESS that provides significant benefits to both employees and the company. Plus, who knows? Maybe you’ll even get a half-price deal on your CGT.

Contact us to discuss the tax implications of an ESS offer.

Or if you’re running a business, you can learn more about the benefits and drawbacks of setting up an employee share scheme in your organisation.

Learn more.

Speak to the team.