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About calculating discount on stock options

Newbie

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Heya,

I joined a startup in 2018 and as part of job offer I was offered stock options with a strike price and 25% vesting at the end of 1 year and then monthly.
I went through the ATO documentation as per https://www.ato.gov.au/General/Employee-share-schemes/In-detail/Restrictions-and-forfeiture/ESS---Ge...

this comes under the Tax deferred scheme.

 

I have a question regarding calculation of the discount.

So for example,
Option grant: 1000

Grant date: 01/01/2018

Strike Price: 10$
25% (250) vest on 01/01/2019 exactly after a year.
Price of stock on 01/01/2019 - 20$

Price of stock on 01/02/2019 - 25$

Sold on 01/04/2019 - @ 30$


What is the correct way to calculate the discount?
OptionA) Considering the deferred taxing date as 01/04/2019 when they were exercised and sold?
So that means (30$ - 10$) = 20$ * 250 = 5000$ is the discount

OptionB) Considering the deferred taxing date as 01/01/2019 when they vested?
So that means (20$ - 10$) = 10$ * 250 = 2500$ is the discount
Note: that when the vesting happened, it was still under the lockout period.

OptionC) When the lockout period ends, say 01/02/2019
So that means (25$ - 10$)= 15$ * 250 = 3750$ is the discount

Cheers!

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ATO Certified

Community Support

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Hi @bbot,

 

Thanks for your patience.

 

The assessable amount is calculated at the time of the ‘Deferred Taxing Point’. The deferred taxing point for a right is the earliest of the following:

  • when there is no real risk of forfeiting the right and the scheme no longer genuinely restricts disposal of the right
  • when the employee ceases their employment in respect of which they acquired the right
  • for ESS interests acquired after 30 June 2015  
    • when the employee exercises their right, there is no real risk of forfeiting the resulting share and the scheme no longer genuinely restricts disposal of that share
    • 15 years after the employee acquired the right

Based on the information supplied, the deferred taxing point will be when the lockout period ends as the disposal is no longer restricted. If that is the case then Option C would be relevant.

 

You can find a set of relevant examples about ESS - Genuine disposal restrictions and deferred taxing points and start-up information on our website.

 

Hope this helps, JodieH.

 

2 REPLIES 2
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Community Manager

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Hi @bbot,

 

Thanks for your question.

 

We are going to check this out with a specialist and will get back to you as soon as we can.

 

Thanks

 

KylieS

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ATO Certified

Community Support

Replies 0

Hi @bbot,

 

Thanks for your patience.

 

The assessable amount is calculated at the time of the ‘Deferred Taxing Point’. The deferred taxing point for a right is the earliest of the following:

  • when there is no real risk of forfeiting the right and the scheme no longer genuinely restricts disposal of the right
  • when the employee ceases their employment in respect of which they acquired the right
  • for ESS interests acquired after 30 June 2015  
    • when the employee exercises their right, there is no real risk of forfeiting the resulting share and the scheme no longer genuinely restricts disposal of that share
    • 15 years after the employee acquired the right

Based on the information supplied, the deferred taxing point will be when the lockout period ends as the disposal is no longer restricted. If that is the case then Option C would be relevant.

 

You can find a set of relevant examples about ESS - Genuine disposal restrictions and deferred taxing points and start-up information on our website.

 

Hope this helps, JodieH.