Joyce Cheng, Director, Prime Remuneration Services
Employee Share Schemes (ESS) are a valuable way to attract, retain, and reward employees, but they also come with annual reporting obligations that must be met to remain compliant with the Australian Tax Office (ATO).
As we approach financial year-end, now is a good time for you to understand what’s required.
What is ESS Reporting?
If your company offers shares, rights, or options to employees or directors under an employee share scheme, you are required to report these interests to the ATO each financial year. This is known as ESS reporting.
There are two main components:
- ESS Annual Report: A file submitted to the ATO summarising all ESS interests provided to employees during the year.
- ESS Statements for Employees: Individual statements issued to each participating employee or director, summarising their reportable ESS interests for the year. These help employees complete their tax returns accurately.
Key Requirements
Who must report
All companies (including startups and private companies) that have issued ESS interests during the year.
When to report
Employee statements must be provided by 14 July and the Annual report to the ATO must be lodged by 14 August.
Lodgement method
If you have fewer than 50 participants, you can lodge manually via the ATO’s Online Services for Business. If you have 50 or more participants, the ATO requires lodgement through an approved provider using a digital reporting solution (also called the "ESS approved software provider channel").
What to Report
You'll need to include information such as:
- Type of ESS interest (shares, rights, options)
- Grant and vesting dates
- Taxable value at vesting or exercise
- Employee and company details
Common Pitfalls to Avoid
- Missing deadlines: The 14 July and 14 August deadlines are firm. Missing them can result in penalties.
- Incorrect data: Errors in participant details or calculations can cause issues for both the company and its employees.
- Not considering plan changes: Amendments to plan terms or vesting events during the year must be accounted for in the reporting.
- Lack of documentation: Poor record-keeping can make year-end reporting difficult and increase the risk of non-compliance.
Special Considerations
- Unlisted companies: You’ll still need to report even if your shares are not publicly traded.
- Startups: If you're operating under a startup concession, reporting is still required.
- Departed employees: ESS reporting must include any former employees who held or exercised ESS interests during the financial year.
In Summary
ESS reporting is a technical and mandatory requirement for any company offering employee equity. With tight deadlines and detailed data requirements, it's important to prepare early, especially if you have 50 or more participants and must lodge through an ATO-approved provider.
Make sure your employee data is up to date, review your plan activity for the year, and ensure you understand which reporting pathway applies to your business.
