Many companies use an ESS to attract and retain high-quality staff. Employees who receive ESS interests (shares or rights to acquire shares) at a discount are generally assessed on the amount of the discount at the time they acquire their ESS interest.
However, the legislation allows for this taxing point to be deferred in some instances, including when the employee is genuinely restricted under the scheme from immediately disposing of their ESS interest. In these circumstances, the deferred taxing point arises when this restriction is lifted.
The TD 2022/4 Income tax: when are you genuinely restricted from immediately disposing of an interest provided under an employee share scheme? explains that a genuine disposal restriction must be a restriction or condition that:
- Exists at the time the employee acquired the ESS interest
- Prevents the employee from immediately disposing of their ESS interest
- Is sufficiently identifiable, certain and legally enforceable and contained in either the
- Governing documents of the ESS
- Documented company policies
- Employee’s employment contract
- Would result in serious and enforced consequences if breached
An employee will not be genuinely restricted from immediately disposing of their ESS interests where the employer has a broad discretion to allow the employee to trade.
The Determination TD 2022/4 contains examples that illustrate what is and is not a genuine disposal restriction.
