Daniel Hodgson and Matt Masters reflect on lessons learned from FY16 regarding the Employee Share Scheme (ESS) Reporting specifications introduced last year.
The Australian Taxation Office (ATO) is committed to providing better online services to taxpayers, and in doing so, has been significantly shifting the onus of responsibility for tax reporting from employees to the employer.
The new Employee Share Scheme (ESS) reporting specifications introduced last year are part of this initiative.
Twelve months on, with year-end rapidly approaching, it is timely to reflect on lessons learned from FY16, to ensure you are adequately prepared, the cost of compliance is reduced and the risk of error is minimised.
Tax legislation covering ESS has not changed since 2015. However, the tax rules applying to awards are subject to when the award was granted, and could fall into one of three buckets, each with distinct tax rules dictating when participants are likely to be taxed. Knowing which of your ESS will create a taxable event in FY17 is critical to ensuring complete and accurate reporting.
There are likely to be ESS reporting obligations to the tax authorities in an expatriate’s home and work locations. Ensuring a globally consistent approach to the apportionment of ESS income, that requires accurate identification of relocation dates and agreement to the share value used can ensure duplicate taxation is avoided.
It is difficult for employees to reconcile the aggregated amounts disclosed in their ESS statements. To avoid follow up queries from employees, provide a breakdown of the amounts reported, including for example, the plans and awards giving rise to the disclosures, how market value has been determined, and if relevant, exchange rates used and the basis for apportionment. If your reporting does not account for share sales within 30 days of the deferred taxing date, advise this as this is the main reason for differences between the reported amount and the amount disclosed in an employee’s tax return.
When requesting data from your share plan administrator, ensure that the data is sufficient to identify payroll tax wages (for grants or vests, subject to elections made) and adjustments (for forfeitures), so that this analysis can be performed in parallel to the ATO disclosures.