The ATO has recently released two Tax Determinations (TD) in April 2022 in relation to Employee Share Schemes (ESS). Below is an overview of the key information.
- TD 2022/4: When are you genuinely restricted from immediately disposing of an interest provided under an employee share scheme?
- A genuine disposal restriction is required as part of a correctly designed deferred tax scheme so that employee participants are not taxed in the year of acquiring shares or rights to shares.
- This determination sets out the ATO’s view of the meaning of a “genuine disposal restriction” and sets out the principles for working out whether restrictions are genuine as well as when a participant is no longer restricted in order to confirm the ESS taxing point.
- Restrictions imposed by the exercise of a discretion are only relevant if that discretion was exercised in a way that meant the participant was genuinely restricted from immediately disposing of their ESS interest at the time they acquired it.
- To be genuine, a scheme's disposal restrictions must be sufficiently identifiable (real and objectively demonstrable), certain and legally enforceable (not spurious or hypothetical). There must be serious and enforced consequences when a breach of a scheme's disposal restriction occurs. Conversely, a disposal restriction is not genuine if it is open to manipulation such that it does not in a real, practical sense limit the disposal.
For further information on TD 2022/4 click here.
- TD 2022/8: Deductibility of expenses incurred in establishing and administering an employee share scheme.
- Previously there had been some debate regarding the tax treatment of different types of share scheme costs and whether they are immediately deductible or capital in nature.
- This determination addresses the tax treatment of costs for the establishment as well as the administration of both employee share schemes as well as employee share trusts.
- In particular, it confirms that establishment expenses are capital in nature but may be deductible over 5 years as “blackhole expenditure”.
- Since this also applies before the date of issue, companies may need to review how they have previously treated these costs.
For further information on TD 2022/8 click here.
Our team is currently reviewing vestings processes for our clients, to assist you in ensuring compliance with TD 2022/4.
If you have any questions or need assistance, please reach out to your Computershare Relationship Manager. They will be well placed to partner with you and your advisory firm in ensuring any outcomes we deliver are in line with changes you may wish to make.