Employee Share Schemes
Companies with Employee Share Schemes (ESS) are required to report to the ATO and provide employees with a statement if a ‘taxing point’ has occurred during the tax year. Furthermore, employers operating start-up plans are also required to report to the ATO the grants made within the year.
You must provide an ESS statement to employees by 15 July 2024, and the ESS annual report to the ATO by 14 August 2024. This presents a significant amount of pressure on employers looking to provide ESS statements in a timely manner, with taxing points arising right up to 30 June in some cases.
As well as the complexity of the reporting itself, which requires ATO compliant software not ordinarily integrated with businesses payroll solution, below are some of the issues we are seeing in the market highlighting the particular complexity of ESS:
- ‘Start-ups’ not issuing ESS statements to their employees. This has been a particular occurrence in transactions, with failure to issue the correct reporting in a timely manner being flagged as part of due diligence reviews and giving unnecessary stress to participants hoping to capitalise for the concessional Capital Gains Tax regime that the Start-up ESS awards can fall into.
- Failing to get advice and understanding the taxing points. The failure to get advice and understand when the taxing points arise can lead to late reporting which can trigger penalties (including penalties that fall under the punitive Significant Global Entity penalty regime). This can lead to penalties of up to $782,500 in some cases.
- Complexity for reporting expatriates and internationally mobile employees and the interaction with the tax residency rules and Double Tax Agreements.
- Understanding that ESS reporting can extend to directors and contractors.
- Some ‘phantom’ plans or cash settled plans may have different reporting requirements.
- The ’30-day rule’ and how that may impact the reporting.
Given the significant complexity, time pressure and associated risks that can be involved, we recommend that you engage with Employment Solutions advisors to review your plans and ensure you are accurately meeting your ESS reporting requirements.
Payroll Tax
Most employers will be aware of the upcoming payroll tax lodgements. The annual return generally must be lodged by 21 July each year but may vary, such as in New South Wales and South Australia, where it must be lodged by 29th July. However, with the constantly evolving and increasingly active State Revenue Offices, the lodgement date itself should only form part of employers’ consideration. We set out below some of the common issues identified in subsequent audits:
- Mismatch of reporting of ESS with state payroll tax disclosures. The failure to include the corresponding ESS reporting for state payroll tax or including at the incorrect time (noting the taxing point for ESS reporting and state payroll taxes are not necessarily aligned). This can lead to broader payroll tax audits triggered by data matching ESS.
- Fringe Benefits Tax (FBT) disclosures. Similar to ESS above, the failure to include FBT amounts or the incorrect FBT amount can trigger an audit from data matching initiatives.
- Inclusion of contractors in payroll tax. There is a common misconception of the ability to exclude contractors where an assessment has been made at common law that they are not common law employees. However, the inclusion of contractors for payroll tax in most states extends to almost all genuine contractor arrangements unless a specific exemption applies. As such, this can capture a multitude of arrangements including contractors engaged through companies or trusts, even where there may be no associated PAYG withholding or Superannuation Guarantee requirements.
- Grouping of entities and the subsequent double claiming of thresholds. This can include inadvertent grouping through control at a board level, entities being held through discretionary trusts or the use of shared employees.
- Updates to the payroll tax rates and introductions of Metal Health Levy’s as set out in the various recent state budget updates such as the changes in Victoria.
- Director’s fees or other ‘off-payroll’ amounts for employees such as expatriate employees.
The above are just some of the issues that have arisen during recent audits and reviews. Given the significant level of activity aided by more sophisticated data matching techniques, we recommend that a robust state payroll tax review becomes part of all businesses’ broader tax governance process.
Taxable Payments Annual Report
Taxable Payments Annual Report (“TPAR”) is often overlooked ahead of other tax obligations (income tax, indirect tax, and employment taxes, amongst other tax matters) however it should be on the radar of businesses, especially those who fall under the definition of a Significant Global Entity.
Annual TPAR lodgements are due by 28 August every year. If you engage contractors (including subcontractors, consultants, and independent contractors) and your business provides any of following services, you could be required to comply with Taxable Payments reporting system and lodge a TPAR:
- Building and construction services
- Cleaning services
- Courier services or road freight services
- Information technology
- Security, investigation or surveillance services
- Government entities.
Considering the breadth of the Taxable Payments reporting system requirements, not only businesses that primarily offer services in the above industries have reporting requirements. For instance, for retailers and restaurants that rely on courier services for deliveries, this service has become central to their business model. They may therefore have inadvertently given rise to reporting requirements.
As such, if your business provides services in any of the industries above but are uncertain if you are required to lodge a TPAR we can assist with the determination of your TPAR obligations. Additionally, Grant Thornton have an in-house tool to assist with the lodgement of TPAR, without the requirement to complete forms and manual entry. Contact a member of our Employment Solutions team, or your local tax contact, for assistance.
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