From Chaos to Clarity: A No-Nonsense Guide to ESS Tax Reporting

Employee Share Scheme (ESS) reporting season doesn't have to be the source of dread for you and your employees. While the process can seem complex, a few simple, proactive steps can transform it from a source of confusion into a valuable, transparent employee experience. 

Forget the last-minute scramble and the flood of "how did you calculate this?" emails. Here is a straightforward guide to getting your ESS tax reporting right. 

1. Enhance the ESS statement: context is everything

Yes, you must fill out the ESS statement as prescribed by the ATO. But don't just stop there. The single biggest cause of confusion is a lack of context. To pre-empt the questions, provide a simple, additional breakdown. 

A small table showing the following can work wonders: 

• Number of ESS interests

• Market value per ESS interest (and the methodology, e.g., 5-day VWAP) 

• The total discount amount 

• The type of taxing point 

Bonus points: Include a short glossary of key terms like "Taxing Point," "VWAP," and "Discount" to demystify the terminology. 

2. Communicate proactively and consistently

Effective ESS management goes beyond a single annual statement. It requires consistent communication and process. 

• Manage associate interests correctly: Always report the ESS interest in the name of the employee, even if it was provided to an associate (like a spouse or trust). When you send the statement, include a brief, friendly note explaining why they are receiving it directly. 

• Be consistent with valuations: I wouldn’t recommend changing your market value methodology each year. Pick a consistent method, like a 5-day Volume Weighted Average Price (VWAP), and stick to it for consistency and clarity. 

• Address the '30-day rule': Before you even prepare the statements, reach out to staff. Ask if they sold shares within 30 days of their taxing point and request evidence. This allows you to proactively amend their statement value and report the correct data from the start, avoiding future amendments. 

3. Streamline your lodgement for a better employee experience

The deadlines are clear: provide statements to employees by 14 July and lodge the report with the ATO by 14 August. However, the timing of these actions within the deadlines matters. 

The employee tax return pre-fill data only appears after you submit the lodgement data to the ATO. For a superior employee experience, lodge your ATO data as soon as possible after delivering the statements to your employees. This ensures they have the information ready when they need it. If you use an outsourced provider, insist that these two actions happen close together. 

4. Educate and support your people

ESS should be a benefit, not a burden. The entire project should not be siloed within the finance or tax team. 

• Run education sessions: Host sessions for employees when an offer is made and leading up to a vesting event. Explain the tax implications and allow for anonymous questions. 

• Explain the 'How': Make sure employees clearly understand the process for selling their shares. Outline the steps and timing for using the plan administrator's sale facility versus transferring to their own broker. This empowers them to make genuine choices. 

• Collaborate for support: Work with your finance teams, outsourced providers, and plan administrators to ensure employees have a clear channel to ask questions. Simple references to ESS tax implications in vesting communications can prevent the annual statement from being a complete surprise. 

By taking these steps, you build trust, reduce administrative strain, and turn your ESS into the powerful engagement and retention tool it was designed to be.

Jordan Foster is Automic Group’s Head of Company Registry & Employee Share Plans. For more information, please don’t hesitate to email Jordan or contact your Customer Success Manager at Automic.