The ATO usually does things for a reason...If this is working...

The ATO usually does things for a reason...

If this is working how other employee share schemes work, then nobody's paying tax on the full amount in any case.
You'd pay tax on the discount, i.e. the difference between the price you paid (option price) and the actual market value of the shares (at that date).
A key benefit is this entitles you to use the market value as your cost-base going forward.

Basic example of how it works:

• Employer company issues you shares that are worth $100,000 ($1 per share) and that is your cost-base going forward.

• You only pay $80,000 for the shares (80c per share).

• This means you received a discount of $20,000. You pay tax on that 20k.
• When you do sell, you pay no tax on the first 100k because of your cost base.
• As far as the ATO is concerned you've paid your dues.

If there was no tax on the discount, employers could collude with employees to abuse it. For example:

• Employer company issues you shares that are worth $100,000 and that is your cost-base going forward.
• You pay $1 for the shares.
• You received assets worth $100k at a discount of $99,999, but pay no tax because you haven't sold anything yet.
• But if 100k is your cost base, you can sell those shares for $100k and pay no tax.
• Your employer has now given an employee tax-free income.