Employee share scheme reporting 2023: Frequently asked questions

What is ESS reporting?

Employee Share Scheme (ESS) reporting is an annual tax reporting requirement for companies that provide shares, rights and options to their employees under an employee share scheme.

ESS reporting requires companies to provide a statement to employees (ESS statement) and an annual report to the ATO (ESS annual report) following the end of the tax year. The ESS statement and ESS annual report provide details (including an estimate of the taxable amount) of any taxing events that have occurred during the tax year in relation to employee equity awards.

The ATO uses the information provided by companies in the ESS annual report to data-match against the disclosures made by employees in their tax returns.

When is ESS reporting due?

ESS statements need to be provided to employees by 14 July following the end of the tax year. The ESS annual report needs to be provided to the ATO by 14 August following the end of the tax year.

What do I need to do? Where do I start?

As ESS reporting involves the reporting of taxing events in relation to employee equity awards, you first need to understand the potential taxing events for your employee equity plans. For example, are the awards taxable at grant, vesting, exercise, sale or at some other event? Once you know what events to look for, you need to obtain the relevant data to calculate the taxable amount to be reported on the ESS statement and ESS annual report.

How do I prepare the ESS statements and lodge the ESS annual report?

For most Australian listed companies, your Australian share plan administrator should be able to assist you with ESS reporting. However, for most foreign listed companies and private companies that do not have an Australian share plan administrator, you typically have two options:

Use the ATO’s ESS online form via the Business Portal to lodge the ESS annual report. You can only use this online form if you have an ABN and less than 50 employees to report. The online form does not produce ESS statements. You will need to do this manually.
Find a vendor, such as PwC, who can prepare the ESS statements and lodge the ESS annual report on your behalf.

What about payroll tax on ESS awards?

Payroll tax is a state-based tax on all wages, salary, commissions, bonuses, benefits, etc. paid to employees. Employee equity awards are also considered taxable wages for payroll tax purposes and companies are required to pay payroll tax at the relevant state payroll tax rate.

Based on our experience, the payroll tax treatment of employee equity awards can be a complex area due to the misalignment between payroll tax and income tax laws.

In many cases, it may not be appropriate to use the amounts calculated for ESS reporting for payroll tax purposes and there may be payroll tax savings to be made if treated correctly.

What are the common challenges that companies experience with ESS reporting?

There are a number of common challenges that companies have in fulfilling their ESS reporting obligations. In 2023, we see the key challenges for companies with ESS reporting being:

1. Data collection

The quality of your ESS reporting is largely dependent on the quality of the data you obtain. For many companies, particularly those head-quartered outside Australia, collecting the relevant data for accurate ESS reporting is not an easy task. We recommend that you prepare early to get all the relevant data.

2. Mobile employees

ESS reporting for internationally mobile employees can be complex. You first need to identify the mobile employees that are subject to ESS reporting. You then need to determine the correct reportable amount. Companies are required to indicate on the ESS annual report whether the amount reported for each award is the actual assessable amount (after taking into account foreign employment), or the gross amount (ignoring any foreign employment).

Reporting the actual assessable amount provides the employee with the most accurate information and should help avoid employees receiving a Data Matching Notice from the ATO that queries any discrepancy of the amount reported on the employee’s tax return against the amount reported by the company on the ESS annual report.

3. Gender Pay Gap Reporting (GPG)

As we head into the ESS reporting season, it is also an opportune time to examine your ESS data from a GPG perspective. For many companies subject to GPG reporting, ESS income vested to an employee in the 12 months up to the snapshot date is currently required to be reported.

However, what analysis is being done around that data and how can that data be used to help make changes to your equity plans to close the GPG? Reach out for a discussion on the reports we can provide you to assist with your GPG reporting, and for insights into what can be done on equity plans to help close the GPG in your organisation.

How can PwC help?

PwC’s reporting tool allows us to turn your raw data into ESS statements, employee breakdown statements and an employer report for lodgement with the ATO. The tool will accurately and efficiently calculate the taxable amount for various types of employee equity awards and for complex employees, including cross border and terminated employees as well as calculating state payroll tax reportable amounts (for awards that are not taxed at grant for payroll tax purposes). Our tool is an automated and cost effective solution used by hundreds of companies each year.