The Commissioner has released a draft taxation determination on employee share schemes. While this draft determination relates a to employees who get a beneficial interest in a share subject to shareholder approval (this does not come within the employee share scheme rules) it is a great time to summarise the employee share scheme rules.
Simply, if you get shares or rights under an employee share scheme and these shares or rights are provided to you at less than their market value, then step through these rules:
Rule 1: The discount on the shares or right is included in your assessable income in the year you get the shares or rights.
Rule 2: If the scheme is available to 75% of the employees who have been at the employer for 3 years and the shares you get make up less than 5% of the share capital voting rights and there is no real risk in losing the shares or rights, you can reduce the discount by up to $1,000.
Rule 3: If there is a real risk of forfeiture then you can delay putting the discount in your assessable income until the earlier of:
- When the risk of forfeiture ends
- When your employment ends
- When 7 years comes up.
Rule 4: And for CGT issues in the future the cost base is the market value at the time you put the discount in your assessable income…
Now that does not sound too hard does it….