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A certified valuer will listen to your situation and answer any questions you may have, at no cost.
Staff equity needs a tax value for the employee and an accounting value for the company, and a priced round leaves ordinary shares worth less than investors paid. We work out each figure, and explain why they differ, while the terms can still be changed.
Indicative valuations from A$799. Certified Summary and Detailed reports from seven business days.
When a Wollongong company grants shares or options to staff, Division 83A calls for a market value for the employee's tax and AASB 2 calls for a grant-date fair value in the accounts. Around a raise, the same work splits the round price between share classes, sets the ordinary share value and keeps the evidence for an ESIC claim.
Staff equity in the Illawarra reaches well beyond software start-ups. A university spin-out near Wollongong issues shares to the researchers whose work it was built on. An engineering firm in the Port Kembla steel supply chain rewards project leaders through a loan-funded share plan. A hospitality group with venues in Kiama and Shellharbour brings its general managers onto the register, and a health provider in North Wollongong offers options to keep senior clinicians. Each grant starts two tests on the day equity changes hands: Division 83A of the Income Tax Assessment Act 1997 taxes the employee's discount against market value, and AASB 2 requires the company to expense the grant-date fair value of the award. The questions are different, so are the bases, and the answers seldom agree.
A single number serving both purposes causes two distinct problems. If the market value is set too low, the ATO can amend the employee's assessment and look at whether the company's ESS reporting was correct. If the fair value is wrong, an error enters every profit and loss statement across the vesting period, and it usually comes to light at the first audit or in the due diligence of a new investor.
A priced round puts everything in the open. After a Wollongong scale-up closes its Series A, each later grant is measured against the round price, yet the incoming investors hold preference shares with rights that employees' ordinary shares lack. Setting the option exercise price at the preference price either overcharges staff or puts the start-up concession at risk, and the mistake stays hidden until the auditor or the ATO asks to see the working.
We prepare the two values as separate conclusions, with the reasoning shown, for founders and boards from Wollongong CBD, North Wollongong and Fairy Meadow to long-established family companies at Unanderra and Dapto. Should the numbers fail to support the position the company wants to take, we will tell you before a grant letter is issued.
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 what amount; AASB 2 decides what the company expenses and over which periods. A single calculation cannot serve both, and forcing it to usually leaves at least one of them wrong.
The taxable amount is the market value of the share or right less anything the employee paid for it. It falls in the year the interest is acquired unless the scheme qualifies for deferral, in which case the taxing point shifts to when any real risk of forfeiture and any genuine disposal restriction end, and no later than fifteen years after grant. On whichever date applies, the company must be able to defend its market value for that day.
Subdivision 83A-33 lets an unlisted Australian resident company incorporated less than ten years ago, with aggregated turnover of no more than $50 million, give staff equity without an upfront tax bill. Two limits are tested on the grant date: a share discount of no more than 15 per cent of market value, and an option exercise price at or above the market value of the underlying share. Both depend on a value that existed at grant, not one assembled afterwards.
An equity-settled award is valued once, at grant, and that amount is spread across the vesting period whatever the share price does later. A cash-settled award, such as a phantom share plan, is remeasured at every reporting date until paid. Service conditions and non-market performance conditions operate through the number of awards expected to vest, so the expense reverses if they are missed. A market condition such as a total shareholder return hurdle is built into the grant-date value, so the expense remains even if the hurdle is never reached.
Employee ESS statements are due by 14 July and the ESS annual report must reach the ATO by 14 August, and both rely on market values. Payroll tax is a separate question. Under the Payroll Tax Act 2007 (NSW), administered by Revenue NSW, shares and options given to employees can be treated as wages, with the value taken at a date that depends on the rules and the employer's circumstances, so your adviser should confirm the position. A plan with staged vesting may therefore need an extra valuation date for the one award.
A qualifying start-up may use the ATO's safe harbour methods: a net tangible assets calculation for shares and, for options, a published table driven by share value, exercise price and remaining life. That certainty is valuable, but the result can sit well away from what the equity would fetch, and where the safe harbour is unavailable or yields a plainly unrealistic figure, market value reverts to general principles: the price a willing, informed buyer and seller would agree at arm's length, neither forced to deal.
We start with the unlisted company as a whole, valued through the income and market approaches, or taken from the latest arm's length round if it is recent and nothing material has changed. That value is then shared among the classes on the register. A liquidation waterfall pays each preference in order and suits a company close to an exit. The option pricing method treats each class as a call option over the business with preference amounts as strike prices, and a backsolve tunes the model until it returns the price the latest investors paid. For a spin-out or technology company a few months past its first priced round, the backsolve is usually the most dependable route to an ordinary share value.
Next, options and performance rights are priced using a model matched to their terms. Black-Scholes suits a plain option with a fixed exercise price. Early exercise and tranche vesting call for a binomial lattice, and a market hurdle or other path-dependent feature requires Monte Carlo simulation. With no trading history, volatility is the input the auditor tests first, so we derive it from a documented group of listed peers matched on industry, size and gearing and measured over a period consistent with the award's expected life. A loan-funded share plan, like those some Port Kembla steel supply chain engineering firms use for senior staff, is in substance an option because the employee's loan is limited in recourse, and we value it that way whatever the plan document calls it.
Around a raise the same analysis answers what founders actually ask. What is the headline pre-money valuation worth once the option pool is carved out ahead of new money, notes and SAFEs convert at their cap or discount, and the preference stack ranks above the ordinary shares? And what will one ordinary share be worth when the next grant is made? To qualify for the early stage innovation company offset, a company must meet the early stage test and either the 100-point innovation test or the principles-based test on the day the shares are issued. Your tax adviser decides whether it qualifies; we prepare the dated market sizing, scalability and competitive advantage evidence the principles-based test draws on and keep it on file. If a bank is providing part of the funding, a lender-facing valuation addresses enterprise value for sizing the facility, the assets offered as security and the headroom against proposed covenants.
None of this is visible on grant day. It surfaces when an auditor, the next investor's advisers or the ATO ask for the calculation, by which time the terms are fixed.
Almost every share scheme or raise valuation is eventually read by someone outside the company: the auditor testing the AASB 2 expense, the ATO reviewing the ESS annual report or a start-up concession claim, or the advisers to the next round's investors. For that reason most companies choose a certified report. An Indicative valuation earns its place earlier, while the plan is being drafted and the terms remain open.
The report links each conclusion to its framework, the valuation date that framework requires, the standard of value and the information relied on. It gives the value of the company as a whole, how that value is shared across classes, which model was used for each award and why, every input with its source, and how far the result moves when key inputs shift, typically volatility and expected term. Where the Division 83A and AASB 2 figures differ, the report explains why, so your tax adviser and your auditor work from one document.
A certified valuer signs each report, answers the auditor's questions directly, defends the peer group and the choice of model, and stands behind the conclusion if the ATO, Revenue NSW or a later investor challenges it. If a disagreement over value goes to court, whether between founders or between the company and a departing executive, the same valuer can give expert evidence under the Expert Witness Code of Conduct in the court rules, in a forum such as the District Court at Wollongong or the Supreme Court of New South Wales in Sydney. We work alongside your tax adviser, the lawyers drafting the plan rules and your auditor from the outset, because a valuation prepared without them usually has to be redone.
If the auditor questions the volatility input and the ATO questions the exercise price, does one working paper answer both? If not yet, hold the grant until it does.
Talk your situation through with a certified valuer before you commit to anything, at no cost.