Amongst all the furore about the Australian Taxation Office’s (ATO) draft guidance on section 100A, on 23 February 2022, the ATO also issued draft guidance on determining when expenses incurred in establishing and administering an employee share scheme (ESS) are deductible.

Taxation Determination TD 2022/D2 sets out the Commissioner’s views on the deductibility of the expenses that an employer company may incur in establishing and administrating an ESS as part of its remuneration strategy. The expenses often include establishing and administering an 'employee share trust' (EST) that holds shares or rights for employees participating in the ESS.

Establishment expenses and amendment expenses

The Commissioner views that establishment and amendment expenses are not deductible to the employer company under section 8-1 because they are capital in nature. However, they are deductible to the employer company in equal proportions over 5 years under section 40-880 to the extent that the business is carried on for a taxable purpose.

Establishment expenses associated with the creation of an ESS include:

• legal fees incurred in establishing the EST and ESS plan rules

• start-up costs such as trustee company commencement charges

• registration fees with various authorities

Amendment expenses include:

• legal fees paid amending the ESS and EST plan rules

• regulatory fees and stamp duty paid to authorities

Ongoing expenses

Ongoing expenses associated with the administration of an ESS are deductible under section 8-1. Examples of ongoing expenses include:

• brokerage fees

• audit fees

• bank charges

• making new offers to employees under an existing ESS

When the final Determination is issued, it is proposed to apply both before and after its date of issue.

To discuss or for more information:

 Neil Brydges
Principal Lawyer | Accredited Specialist in Tax Law
M +61 407 821 157 | T +61 3 9611 0176
E nbrydges@sladen.com.au

Lucy Liang
Lawyer
T +61 9611 0131
E lliang@sladen.com.au