With the Australian 2025/26 financial year now closed as of June 30, 2026, employers operating an Employee Share Scheme (ESS) in Australia should turn their attention to their reporting obligations. Timely and accurate compliance is essential — administrative penalties apply for late or incorrect reporting, but these are easily avoided with proper preparation.
There are two mandatory reporting steps:
- Reporting to employees; and
- Reporting to the Australian Taxation Office (ATO).
Employers must issue ESS statements to their Australian employees by July 14, 2026. These statements provide a detailed summary of all equity awards granted, vested, exercised, and/or sold (as applicable) during the 2025/26 tax year. Australian employees typically rely on these statements when preparing their personal income tax returns and attach them as supporting documentation.
By August 14, 2026, employers must file an annual ESS report with the ATO. This report contains substantially the same information provided to employees, along with additional employer and plan details required by the ATO.
ATO Reporting Format Requirements
Although these reporting obligations may appear straightforward, the ATO requires ESS reporting in specific formats that can be challenging for some organizations. Employer reporting ESS for more than 50 employees and/or more than three share schemes must use special software when submitting the annual ESS report to the ATO. This software may be purchased, developed internally, or accessed through a tax agent.
Understanding ESS Taxing Points
Correctly identifying the taxing point for each award remains one of the more complex aspects of ESS compliance.
Eligible startup companies may benefit from the preferential tax rules associated with post-2015 concessional ESS rules. Reporting may still be required at grant, even where no income tax is payable at that time.
At the other end of the spectrum, established share and options plans utilized by multinational organizations are often drafted under foreign tax rules. These plans often require detailed review to determine whether they align with Australian ESS rules and to identify the correct taxing and reporting points.
Reporting for globally mobile employees adds another layer of complexity. Employers must determine which employees require ESS reporting and consider obligations across multiple jurisdictions. For example, Australian tax residents are generally taxed on the full intrinsic value or gain in their equity awards, with potential access to foreign income tax offsets if they are taxed on the same income in another jurisdiction. However, temporary residents and nonresidents may be taxable only on the Australia-sourced portion of the gain.
While employers are not strictly required to determine each employee’s tax residency status for ESS reporting, doing so can materially improve accuracy and reduce the need for employee-initiated adjustments. Some employers adopt a conservative approach by reporting the full amount as taxable in Australia, leaving apportionment or foreign tax offsets to the employee’s tax return. Understanding employees’ residency positions can help minimize over-reporting.
State Payroll Tax and ESS
For employers registered for payroll tax, ESS income may also trigger Australian state payroll tax obligations. The taxable value of ESS interests GENERALLY aligns with the amount recognized for income tax purposes and may be subject to payroll tax in the relevant jurisdictions where the employee is deemed to perform services.
However, under start-up ESS concessions, the income tax value may be nil, while a payroll tax value may still arises. For globally mobile employees, ESS benefits may need to be apportioned across states based on days worked and included in periodic or annual reconciliations. Employers should consider whether their payroll tax processes appropriately capture and allocate all forms of ESS benefits.
BDO Insights
- ATO format and lodgment requirements
Employers with more than 50 employees and/or more than three share schemes may require specialized software to file their annual ESS report. - Identifying the correct taxing point
Determining when an ESS interest becomes taxable is often misunderstood. Although cessation of employment is no longer a taxing point in Australia from July 1, 2022, employers must still assess the specific rules applicable to each award and plan design. - Startup ESS concessions
Startup companies may qualify for concessional treatment, but reporting obligations can still arise even where no immediate income tax liability is payable. - Multinational and offshore plan design
Plans drafted for foreign jurisdictions may not align neatly with Australian ESS rules, requiring careful review to determine Australian taxing and reporting outcomes. - Globally mobile employees
Cross-border employment increases complexity. Employers must consider tax residency, sourcing of the ESS discounts, and whether reporting is required in Australia, overseas, or both.
How We Can Help?
BDO provides an end-to-end solution to support employers with their ESS reporting obligations. Our team reviews employee share plans, identifies correct taxing points for domestic and globally mobile employees, and assists with ATO compliance.
BDO has developed a software application that streamlines the reporting process by converting raw data into an ATO-compliant format, minimizing manual data entry and reducing the likelihood of errors. We can also generate employee ESS statements, providing a breakdown of the taxable amounts by employee and award along with a cover letter.
By streamlining the reporting process, BDO helps employers reduce administrative burdens and focus on their core business operations.
Please visit BDO’s Global Employer Services page for more information on how BDO can help.