What is the Employee Share Scheme Deferred Taxing Point?

Ah, the employee share scheme deferred taxing point – sounds like a mouthful, right? But don’t worry, it’s not as complicated as it may seem.

In this article, we break down what you need to know about the deferred tax points for an employee share scheme (ESS).

So what’s an employee share scheme deferred taxing point?

An employee share scheme’s deferred taxing point is a specific time at which employees are required to pay tax on their shares or options. In Australia, under the employee share scheme (ESS) tax rules, employees are generally required to pay tax on any shares or options they receive under an ESS at the time the shares or options are acquired.

However, in certain cases, employees may be eligible for a deferred taxing point. This means that they can delay paying tax on the shares or options until a later date. For example, when the shares are sold or when a certain period of time has elapsed.

But let’s get real here, the rules around deferred taxing points can be a bit tricky. Your employees must meet specific requirements to qualify, and the shares or options they receive must be subject to certain restrictions.

So let’s talk through an example to make things clearer.

Deferred taxing point: an example.

Say you’re the owner of a start-up, and you’ve decided to reward your team with shares in your company. However, to ensure that your employees remain committed to the business, you’ve put restrictions on those shares that prevent them from being sold for the first three years.

Now, if your employees were required to pay tax on those shares when they were first granted, it could be a serious financial burden for them. But if they’re eligible for a deferred taxing point, they can delay paying tax until the restrictions are lifted. This helps to reduce their immediate tax liability and makes it easier for them to manage their cash flow.

Of course, as with any tax-related matter, the devil is in the details.

The rules around deferred taxing points can be complex, and there are specific requirements that must be met. So, it’s important to seek professional advice to ensure that you’re doing everything by the book.

But don’t let that scare you off – the deferred taxing point can be a great way to help your employees benefit from your employee share scheme while also minimising their tax liabilities. And who doesn’t love a win-win situation, right?