Changes to the tax treatment of shares and rights acquired under employee share schemes (ESS) were announced in the 2009–10 Budget and became law on 14 December 2009.

An ESS is a scheme under which shares, stapled securities, rights to shares or rights to stapled securities (ESS interests) in a company are provided to an employee or their associate in relation to the employee’s employment.

What are the changes?
Under the previous law, employees who acquired a share or right under an ESS were assessed on the discount in the year they acquired the share or right. The amount of the discount was the market value of the shares or rights on acquisition less any consideration they paid to acquire them.

However, where the share or right satisfied certain conditions, the following alternative concessions were available:

  • the employee could defer being taxed on the discount for up to 10 years, or
  • an employee could elect to be taxed upfront on the discount, and
  • where such an election was made and the ESS satisfied some further conditions, only the discount in excess of $1,000 needed to be included in assessable income (the $1,000 upfront tax concession).

Under the new law, the tax treatment of ESS interests does not depend on an election made by the employee. The structure of the scheme and the employee’s circumstances will determine if an employee pays tax upfront or if tax is deferred.