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It is never too early to start planning and considering your employee share scheme (ESS) reporting obligations!

ESS reporting is an annual tax reporting requirement for companies that provide shares, rights and options to their Australian employees under an employee share scheme. The ESS reporting can be a complex, time consuming and tedious annual requirement, particularly for foreign inbound companies or Australian companies with mobile employees.

If you have reviewed and understand your equity plans from an Australian tax perspective, have access to the right tools to generate accurate reports and provide easy to read, accurate information to employees - it doesn’t have to be so complicated.

Now is the perfect time to reflect upon the prior financial year and start planning for an efficient and successful 2025 ESS reporting season. We have compiled below some key points to keep in mind based upon our experience.

Determining when your equity awards are taxed

ESS reporting is required in the year that an employee’s equity awards reach a taxing point. As such, it is important to first determine the relevant taxing point for your employee equity awards. For example, are the company’s awards taxable at vest, following a trading blackout period or sale?

As there are differences in the tax treatment of equity awards in each country, it is particularly important for overseas companies with inbound employees to have their equity plans reviewed from an Australian tax perspective. PwC can help you with this to identify the relevant tax treatment, and particularly the taxing point for awards offered to Australian employees.

Data management is essential

Once you know the relevant taxing events to look for, you need to obtain the relevant data to calculate the taxable amount to be reported on each ESS statement and the ESS annual report. Maintaining relevant information on shares or rights issued is therefore essential.

Now is a good time to reflect and take note of the relevant data sources that you provided to complete your 2024 ESS reporting. If you spend time earmarking the sources for the relevant data now, it will save you time and simplify the process for next years’ reporting season. It is also important to remember the employee information that is required, such as Australian tax file numbers, and addresses.

Pre-empting employee queries

Responding to employee queries with respect to their ESS statement can often be stressful and time consuming. Some of common questions asked by employees include:

• Why does my ESS statement show a different price to my share brokerage account?
• I sold my shares withing 30 days of the taxing point, can you amend my ESS statement to reflect this?
• I was out of Australia for the full year, why am I still getting an ESS statement?

A great way to pre-empt and manage employee queries, and thereby save you time, is to hold information sessions for your employees to explain their ESS statement in advance. Another great practice to help employees understand their award and pre-empt the questions that often arise is to provide an information sheet to each employee together with their ESS statement.

Other employer obligations - State payroll tax and gender pay gap reporting

In addition to ESS Reporting, there are a couple of other important employer obligations that can be somewhat cumbersome and are sometimes forgotten in the year end rush.

State payroll tax

State payroll tax is due in relation to employee equity awards either in the year of grant, or when they “vest” for state payroll tax purposes. It can be complex because there are differing taxing points for payroll purposes compared with ESS Reporting. Recently, the State revenue authorities have been actively auditing companies who lodge ESS Annual Reports to ensure they have correctly reported the equity awards for State payroll tax purposes. As a result, now is an opportune time to make sure you have appropriate processes in place to correctly calculate and report your payroll tax on equity awards.

Gender pay gap reporting

Workplace Gender Equality Agency (WGEA) requires that companies with more than 100 Australian employees provide information annually on remuneration of employees by gender. This calculation includes equity awards provided to employees. The complicating factor is that the time period captured by a WGEA report often does not mirror the time period for an ESS report.

Bringing it all together – A value-add ESS reporting tool

Without access to an efficient reporting tool, ESS reporting can be a burden. This is particularly so for foreign inbound companies or Australian companies with mobile employees. There is additional complexity and consideration required for employees who have worked across several jurisdictions, requiring calculations of the correct apportionment of assessable amounts.

PwC’s bespoke, in-house ESS reporting tool allows us to take multiple data sets and inputs and translate these into accurate outputs in a meaningful and importantly cost-effective way. In one tool and with essentially one upload of data, PwC’s ESS reporting tool will generate:

• Employee ESS statements
• Employee breakdown statements showing exactly how amounts on the ESS statement are calculated (including for mobile employees) and converted into Australian currency
• A cover letter explaining to employees how the income on their ESS statement needs to be reported in their tax return
• An employer ATO report ready for lodgement with the ATO
• A schedule detailing the ESS income subject to payroll tax per state (including an analysis of the position for mobile employees); and
• A schedule detailing the ESS income for WGEA reporting.

If you have any queries about the above or require any assistance, please do not hesitate to contact one of our PwC specialists.