Employee Share Schemes – What to Know and When to Declare It

What Is an Employee Share Scheme?

An Employee Share Scheme (ESS) is when your employer gives you shares or rights (like options) in the company you work for — often as a reward or incentive. You might get them for free, at a discount, or as part of your total pay package.

Free shares? Great. But here’s the kicker — you’ll probably pay tax on them.  Read on Gotax gives you the lowdown in normal speak.

How Are ESS Taxed?

The ATO has specific rules (hello, Division 83A of the Income Tax Assessment Act 1997). The key thing? The “discount” you receive (the difference between what you paid and what it’s worth) is usually taxable income.

There are three main types of schemes, and the tax timing depends on which one you’re in:

1. Taxed Upfront Scheme

• You pay tax on the discount in the year you receive the shares or rights.

• If your income is under $180,000, you might reduce the taxable discount by up to $1,000.

2. Tax-Deferred Scheme

• You delay the tax until a “trigger event” — like when you leave the company, the shares vest, or 15 years pass (yep, 15!).

• When the trigger hits, you pay tax at your marginal rate on the discount.

3. Start-Up Concession

• If your employer is a qualifying start-up, you don’t pay tax on the discount upfront.

• Instead, you’re only taxed under capital gains tax (CGT) rules when you eventually sell the shares.

What If Things Change?

• Your shares are “at risk”? If there’s a real chance you’ll lose the shares (e.g. if you leave early), you may be able to defer the tax.

• You get units in a trust instead of shares? That’s usually a fringe benefit. Your employer may deal with the tax under FBT — not you.

Reporting and Paperwork

• Your employer reports ESS income to the ATO.

• You’ll get an ESS statement. Use this to fill in your tax return.

• Include the taxable amount in the relevant year’s return.

What Records Should You Keep?

• ESS statements from your employer

• Details of when you got the shares/rights, what you paid, and what they were worth

• Any records for when you sell the shares (this will affect CGT)

Keep everything for at least five years after selling.

Gotax FAQ – Real Questions, Real Fast

Q: I got shares from work at a discount. Do I pay tax?
A: Yes — the discount is usually taxable. When you pay depends on your ESS type.

Q: My shares are “at risk” if I leave. Do I pay tax now?
A: Probably not yet. If there's a genuine risk, you can usually defer the tax.

Q: I work for a start-up. Do I get special treatment?
A: Maybe. If your employer qualifies, you could avoid tax on the discount and only pay CGT when you sell.

Q: I got units in a trust instead of shares. Do I pay tax?
A: That’s likely a fringe benefit — your employer handles it under FBT.

Q: I didn’t get any money. Do I still declare ESS income?
A: Yep. The ATO treats the value of the discount as income, even if you didn’t get cash.

Q: What if I sell the shares later?
A: You might pay CGT on any profit. Your cost base is usually the value at the time you were taxed.

Final Thoughts
If you get shares or rights from your job, you’ll likely pay tax — either now or later. Keep your ESS statement, record everything, and don’t wing it. When in doubt, just ask Derek below.

Let GoTax Handle It For You

GoTax Online makes your ESS tax stress-free. We guide you through entering your ESS statement, apply the right rules, and make sure it lands in the right part of your tax return.

Fast. Accurate. No guesswork.

Start your return now: www.gotax.com.au/guest-user