Free Consultation
Book a Free Consultation
A certified valuer will listen to your situation and answer any questions you may have, at no cost.
A share or option granted to a Hunter employee carries one value for the employee's tax and another for the company's accounts, and after a priced round an ordinary share is worth less than the investors paid. We work out each figure and explain why they differ, while the plan terms can still change.
Indicative valuations from A$799. Certified Summary and Detailed reports from seven business days.
Staff equity valuations give a Newcastle or Hunter company two figures for each grant: the market value the ATO uses to tax the employee under Division 83A, and the grant-date fair value AASB 2 puts in the accounts. While a round is being priced, we also value the ordinary shares beside the investors' preference shares and file ESIC evidence.
Staff equity has spread well beyond software in the Hunter. An engineering firm supplying the defence precinct around Williamtown might grant options to keep systems engineers that larger contractors are courting, a spin-out built on research from the Hunter Medical Research Institute might issue shares to the scientists behind it, and a technology business at Honeysuckle might put key staff on the register before a raise. Each of those grants starts two separate tests on the day the equity is issued.
The two tests rarely land on the same number. Division 83A of the Income Tax Assessment Act 1997 measures the employee's taxable discount against market value at the taxing point, while AASB 2 has the company expense the award's fair value at grant. If one figure is made to do both jobs, the ATO may revisit the employee's tax and the company's ESS reporting, and an auditor or a new investor's due diligence team may find an expense that has been wrong in every period since the grant.
Capital raising sharpens the issue. The price a Newcastle start-up agrees with seed or Series A investors is a price for preference shares, which carry the right to be paid first and protection against dilution; staff hold ordinary shares without those rights. An exercise price copied from the round therefore charges employees too much or puts the start-up concession at risk, and the problem usually lies dormant until someone asks how the figure was reached.
We report the tax value and the accounting value as two conclusions, each with its reasoning, for founders and boards from Callaghan to the Newcastle CBD and for long-standing family companies bringing managers into ownership. Where the numbers will not support the position the company wants to take, we tell you before any offer letter is sent.
A certified valuer will listen to your situation and answer any questions you may have, at no cost.
Division 83A decides when an employee is taxed on equity and on how much; AASB 2 decides what the company expenses and in which periods. ESS reporting and state payroll tax bring their own dates. No single calculation can serve all four.
For shares or options settled in equity, the company fixes a fair value at grant and recognises it over the vesting period; later share price moves do not change it. Phantom and other cash-settled plans differ, because the liability is remeasured at every reporting date until paid. Service and non-market performance conditions work through the number of awards expected to vest and reverse the expense if they fail, whereas a total shareholder return hurdle is priced into the grant-date value and the expense stands even if the hurdle is missed.
An employee who receives shares or rights at a discount is taxed on the gap between market value and the amount paid. Normally that happens in the income year of acquisition; under a deferral scheme it waits until any real risk of forfeiture and any genuine restriction on sale have ended, with a fifteen-year outer limit. Either way, the equity needs a market value at that date, and the company carries the reporting obligation.
Each year the company gives ESS statements to participating employees by 14 July and lodges its ESS annual report with the ATO by 14 August, and the discounts in both are worked out from market values. Payroll tax sits alongside: Revenue NSW administers the Payroll Tax Act 2007 (NSW), under which employee shares and options can count as wages. The date and value used for that purpose are for your tax adviser to settle, and may match neither federal date.
An unlisted Australian resident company incorporated less than ten years earlier, with aggregated turnover of $50 million or less, can offer staff equity without an upfront tax bill if the grant meets its pricing limit. For shares, the discount can be no more than 15 per cent of market value; for options, the exercise price must be at least the market value of the underlying share. Both are measured on the grant date, so the value has to exist then, not be rebuilt later.
Eligible start-ups may value shares on a net tangible assets basis and options from the ATO's published tables, which work from share value, exercise price and time to expiry. The ATO accepts a result properly worked out under these methods, which helps, but the output may bear little resemblance to what a buyer would pay. If the company does not qualify, or the result is plainly unrealistic, the ordinary meaning of market value applies: what a willing and informed buyer and seller would agree at arm's length, with neither compelled to deal.
Every staff equity value rests on a value for the company. We build it from the income and market approaches or, where an arm's length round closed recently and little has changed since, from that round. The harder step is sharing it among the classes on the register: a waterfall suits a company close to a sale, the option pricing method suits one with an open-ended future, and a backsolve calibrates that method to the price new investors just paid, which is usually the most reliable route in the months after a raise.
Each award is then priced on its own terms, with the model that matches its features. Because an unlisted company has no trading record, volatility comes from listed peers chosen for similar activity, size and gearing and measured over a window that fits the award's expected life, and we keep the selection on file because it is the first thing an auditor asks about. A loan-funded share plan, which some Hunter engineering and defence suppliers use for senior people, behaves like an option when the loan is limited in recourse, so we value its economics rather than its label.
During a raise, founders want to know what the headline pre-money number means for them once the option pool is topped up ahead of the new money, notes and SAFEs convert at their cap or discount, and preference rights rank ahead of ordinary shares. We model that and give an ordinary share value for the next grant date. For the early stage innovation company offset, we prepare dated evidence of market size, scalability and competitive position for the principles-based test, leaving the eligibility decision with your tax adviser, and where a bank lends alongside the raise we can value the enterprise and the security for facility sizing and covenant headroom.
Each of these looks harmless when the offer letters go out and becomes costly once someone outside the company asks how the number was reached.
Staff equity and raise values are tested by people outside the company: auditors, the ATO and the next investors' advisers. For grants and closings we therefore recommend a certified report. An Indicative valuation helps at the design stage, while the board is still shaping the plan and the round.
The report opens with the question each figure answers: Division 83A, AASB 2, payroll tax or the raise. For each it records the date, the standard of value and the documents used, then works from the value of the whole company to the split between classes, the model chosen for each award, the sourced inputs and a sensitivity table for volatility and expected term. Where the tax and accounting figures differ, a short reconciliation explains why, so your tax adviser and auditor read the same document.
We do not hand over a report and step away. The certified valuer who signs it answers the auditor, explains the peer group and the model, and defends the conclusion if the ATO, Revenue NSW or a later investor disputes it. If founders, or the company and a departing executive, end up arguing about value in the Supreme Court of New South Wales in Sydney, the same valuer can give expert evidence under the court's expert evidence rules and the Expert Witness Code of Conduct, and because your tax adviser, plan lawyers and auditor are involved from the start, the work is done once.
If the auditor challenges the volatility and the ATO challenges the exercise price, can one working paper answer both? Until it can, the grant should wait.
Talk your situation through with a certified valuer before you commit to anything, at no cost.