You can provide benefits to your employees in the form of employee share schemes (ESS).
Taxing employee share scheme benefits
You need to choose how the ESS will be taxed. Whichever option you choose needs to apply to all your employees.
Option 1: Your employee pays the tax
- The ESS benefits are treated as income, which may affect an employee’s student loan deductions, child support payments or Working for Families payments.
- Each employee will need to file an Individual tax return (IR3) at the end of the tax year.
Option 2: You pay the tax
- You tax the ESS benefits as lump sum payments – also known as extra pay.
- You do not need to deduct KiwiSaver or pay ACC.
If your employee agrees you can sell some of the shares to pay any tax owing.
Filing employment information about employee share scheme benefits
What you need to tell us
You need to file employment information about the taxable value of the ESS benefit to your employee, even if you chose not to deduct tax from the benefit.
You need to show an employee’s ESS benefits separately from any other earnings the employee receives. Add a separate entry in your employment information showing:
- employee’s name and IRD number
- the payment code “ESS”
- the taxable value of the ESS benefit – also include this as “Earning not liable for ACC earners’ levy”
- the total tax, and any student loan or child support, deducted from the benefit.
You do not file employment information about the ESS benefits when:
- the employee or associate sells share rights to a non-associated third party
- the share benefit arises from an exempt ESS, as this is exempt income.
When you need to tell us
You need to identify a ‘ESS deferral date’. This is 20 calendar days after the share scheme taxing date.
The share scheme taxing date is the earlier of the date when:
- the benefits are cancelled
- the benefits are transferred to a non-associated person
- the employee’s ownership of shares is no longer affected by the terms of their employment.
You can either file the information on a payday basis or twice a month.
Filing on a payday basis
You need to file the employment information within 2 working days of the ESS deferral date if filing electronically, or within 10 working days if filing by paper.
Filing twice a month
If the ESS deferral day is between the:
- 1st and 15th of the month, treat the benefit as if the employee received it on the 15th of the month
- 16th and end of the month, treat the benefit as if the employee received it on the last day of the month.
The date you file employment information about the ESS benefits depends on whether you file your usual payday information electronically or by paper.
|File electronically||File by paper|
File information within 2 working days of:
File information within 10 working days of:
Exempt employee share schemes
If you operate an exempt employee share scheme you need to:
- tell us you are operating the scheme
- report at the end of the tax year on the total value of the shares granted to your employees.
Do not include exempt schemes in your regular employment information filing.