Concessional schemes (concessional tax treatment can apply)

If you acquire ESS interests under one of the concessional schemes, you can receive concessional tax treatment for your discount if you and the scheme meet:

• all general conditions for all concessional schemes
• conditions specific to the scheme and the particular ESS interests.

The general conditions include the ownership and voting rights test that applies to you.

• For ESS interests acquired on or after 1 July 2015, see the 10% ownership and voting rights test.
• For ESS interests acquired before 1 July 2015 see the 5% ownership and voting rights test.

Taxed-upfront scheme: Eligible for reduction

If you acquire ESS interests under this scheme, you may be entitled to reduce the discount amount that must be included in your assessable income by up to $1,000.

To be entitled to the concession, you will need to meet:

• the ownership and voting rights test
• an income test (your taxable income after adjustments must be $180,000 or less).

See also:

• Income test for the upfront concession – $1,000 reduction

Start-up concession (ESS interests acquired after 30 June 2015)

Your employer will advise if you are eligible to receive the start-up concession for your ESS interests.

If you are eligible, the start-up concession is available to you provided that you meet the 10% ownership and voting rights test.

The concession allows you to reduce your taxable discount income to nil. However, you may be subsequently assessable under the capital gains tax provisions when your interests are sold.

 

Salary sacrifice: Tax-deferred scheme

If you acquire ESS interests under this scheme, the tax on the discount you receive on your interests will be deferred until the income year in which the deferred taxing point occurs, provided the conditions are met.

The conditions are:

• under salary-sacrifice arrangements, you acquire no more than $5,000 worth (per year) of shares or stapled securities in your employer (or any holding company of your employer)
• you meet the ownership and voting rights test.

Real risk of forfeiture: Tax-deferred scheme

Some schemes include terms that create a risk that your ESS interests will be lost or forfeited. If you have acquired ESS interests under this type of scheme your interests are taxed in the income year the deferred taxing point occurs if:

• you meet the ownership and voting rights test
• your individual circumstances do not prevent you from being eligible because there is no risk that you will lose your particular interests.

In some circumstances you will not be able to defer tax even though you have participated in a tax-deferred scheme. You need to consider your individual circumstances to determine whether your ESS interests are in fact at a real risk of forfeiture. For example, if your employer allows only retiring employees to keep their interests when they cease employment, then there will be no risk that you will lose any interests that you acquire after the time you notify your employer of your retirement date.

See also:

• To work out if your ESS interests are at a real risk of forfeiture, refer to ESS: Real risk of forfeiture

Disposal restrictions: Tax-deferred scheme (ESS interests acquired after 30 June 2015)

If you acquire an ESS interest that is a right, the tax on the discount will be deferred until the deferred taxing point occurs if, at the time you acquired the right under the scheme:

• you are restricted from immediately disposing of your ESS interest
• the scheme's rules state specifically that the scheme is a tax-deferred scheme
• you meet the 10% ownership and voting rights test.

Deferred taxing point

If you acquire ESS interests under a tax-deferred scheme, you will be assessed in the year the deferred taxing point occurs. The amount assessed will be the market value of the ESS interests at the deferred taxing point, reduced by the cost base of the ESS interests.

Shares

The deferred taxing point for a share or stapled security is the earliest of the following:

• when there is no real risk of forfeiture and the scheme no longer genuinely restricts disposal of the share.
• when you cease the employment in respect of which you acquired the share
• 15 years after you acquired the share (or seven years for ESS interests acquired before 1 July 2015).

Rights

The deferred taxing point for a right is the earliest of the following:

• when there is no real risk of forfeiting the right and the scheme no longer genuinely restricts disposal of the right
• when you cease the employment in respect of which you acquired the right
• for ESS interests acquired after 30 June 2015    
  • when you exercise the right, there is no real risk of forfeiting the resulting share and the scheme no longer genuinely restricts disposal of that share
  • 15 years after you acquired the right
   
• for ESS interests acquired before 1 July 2015    
  • when there is no real risk of forfeiting the right or underlying share, and the scheme no longer genuinely restricts exercise of the right or disposal of the resulting share
  • 7 years after you acquired the right.
   

The 30-day rule can change the deferred taxing point

This rule only applies to tax-deferred schemes. It does not apply to taxed-upfront schemes.

Where you dispose of an ESS interest (or the share you acquire on exercise of a right) within 30 days after a deferred taxing point occurs, the deferred taxing point becomes the date of that disposal (this is called the 30-day rule).

For example, a deferred taxing point occurs on 10 March 2016 and the employee disposes of the ESS interest on 29 March 2016. As the disposal is within 30 days, the deferred taxing point becomes 29 March 2016.

See also

• ESS: Genuine disposal restrictions and deferred taxing points
• ESS: Real risk of forfeiture

Concessional tax treatment can apply where particular conditions are met