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Australia | Employee Share Scheme Reports due to employees by 14 July and to the ATO by 14 August

Global Rewards Update

June 2012

Background

The Australian Taxation Office (ATO) requires companies to report any Employee Share Scheme (ESS) taxation events during the Australian tax year (1 July, 2011 - 30 June, 2012). The discount associated with ESS awards is required to be reported to the employee on the Employee ESS reporting form by  14 July and to the ATO on the Employer ESS reporting form by 14 August following the 30 June financial year end. The appropriate box to complete on each form will depend on the type of ESS awards made to participants, the date of grant (i.e. before 1 July, 2009 or on or after 1 July, 2009) and whether the (up to) AU$1,000 tax-free amount on the discount applies. There is currently no PAYG withholding as long as the employee has provided the company with his/her Tax File Number (TFN). Penalties could arise if a company fails to meet its reporting or withholding obligations.

Relevant to non-Australian parent companies

A reporting obligation arises in respect of employees who reside or work in Australia or have resided or worked in Australia during any part of the vesting period, regardless of where the company making the ESS awards is based. Therefore, for example, if a non-Australian-based parent company makes ESS awards to Australian employees or employees on assignment to Australia and there is a 'reportable event', then the parent company will need to complete and provide the appropriate Employee and Employer ESS reporting forms. In our experience, many non-Australian-based parent companies are unaware of their ESS reporting obligations in Australia.

Impact of late filing

ESS reporting was introduced on 1 July, 2009 for ESS reportable events that occur in the 2009/10 Australian tax year onwards. While the ATO has to date not been aggressively pursuing penalties for noncompliance, it is commonly accepted that tolerance will be limited for the 2011/12 tax year.

In addition, late or incorrect submissions could affect the tax risk profile of the company, which could lead the ATO to focus on the company in respect of its other tax obligations.

Reportable events

An ESS reportable event in the context of ESS income depends on when the taxable event occurs for the participant. This is largely driven by the type of ESS awards, the conditions and restrictions in place in connection with regard to vesting of the ESS award and the ultimate sale of any underlying shares of stock.

In our experience, particular difficulty can arise in respect of:

  • Discounts on ESS awards made prior to 1 July, 2009, which may still need to be shown on Employee and Employer ESS reporting forms if a reportable event occurs on or after 1 July, 2009
  • Stock options granted post-1 July, 2009, as these are likely to be taxed at the date of vesting, not the date of exercise. Stock options with an exercise price less than market value of the underlying shares of stock at time of vesting (the taxable event) may still have a tax value for Australian tax and reporting purposes
  • A termination of employment, which could trigger an ESS reportable event before vesting or exercise
  • Lack of communication between a parent company and its Australian subsidiary, so that the Australian company is unaware of ESS awards made to Australian employees or cross-border employees who continue to participate in plans not offered to local Australian employees
  • The treatment of ESS awards held by cross-border employees and how much discount to report in Australia
  • The treatment of ESS awards for the purposes of state-based payroll tax (an employer tax), as the timing and amount subject to payroll tax could be different to the ESS reportable events.

Submission of the forms

The ESS Employee form must be provided to employees by 14 July. The ESS Employer form must be filed with the ATO by 14 August, either via paper or electronically via CD, DVD or USB flashdrive.

Action

  • All companies, whether Australian or non-Australian based, operating ESS plans with participants in Australia should consider whether the employee and employer ESS reporting forms are required
  • All non-Australian parent companies should be communicating with their Australian subsidiaries about ESS reporting and payroll tax responsibilities. For example, Australian subsidiaries need to know whether the parent will be providing ESS reporting forms to the employee and to the ATO
  • If your company has not had its ESS award plans reviewed since 1 July, 2009, now is the time to review and understand the unique tax rules that now apply in Australia to ESS awards.

Contacts

For assistance in this matter or any other issue related to the operation of your global rewards plans, please contact your local Deloitte global rewards consulting services adviser or email us  and a global rewards consultant will contact you.

This Global Rewards Update information is also included in our bi-weekly GES newsletter, Global InSight, which you will receive directly if you are on the central distribution list.

If you are not on the central distribution list and received this communication by some other means, you can follow these few simple steps to be added to the central distribution list:

  • Go to the Deloitte Subscriptions Page on Deloitte.com
  • Make sure that under Step 1 you select "Tax" and "Global Employer Services"
  • Under Step 2, select "Global Insight"
  • Under Step 3, fill out your contact information and click "Save my profile".

Be sure to visit us at our web site: www.deloitte.com/tax.

This publication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or their related entities (collectively the "Deloitte Network") is, by means of this publication, rendering professional advice or services. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser. No entity in the Deloitte Network shall be responsible for any loss whatsoever sustained by any person who relies on this publication.

Where we advertise or represent that tax agent services will be provided by us, such services will be provided by a Deloitte registered tax agent.


Sydney
Rob Basker
Director, Deloitte Tax Services Pty Ltd
Direct: +61 2 9322 7551

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