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A certified valuer will listen to your situation and answer any questions you may have, at no cost.
Two numbers for every grant, the employee's tax value and the company's accounting value, and the ordinary share price a raise actually implies once the preference stack is taken into account.
Indicative valuations from A$799. Certified Summary and Detailed reports from seven business days.
An employee share scheme grant in Sydney needs two values: a market value under Division 83A of the ITAA 1997 for the employee's tax, and a grant-date fair value under AASB 2 for the company's expense. At a capital raise the same work sets the ordinary share price, allocates value across share classes and evidences ESIC eligibility.
When a Sydney company hands equity to its people, whether options at a Surry Hills software business, performance rights at a North Sydney engineering firm or a loan-funded share plan at a family company in Parramatta, it triggers two obligations that are easy to confuse. The employee is taxed under Division 83A of the Income Tax Assessment Act 1997 on the discount they received, measured at market value. The company must expense the award under AASB 2 at its fair value on the grant date. The two are measured on different dates and on different bases, and they usually produce different numbers.
Using one figure for both jobs is the most common error we see, and it costs money in both directions. If the market value is understated, the employee faces an amended assessment and the company faces penalties for inaccurate scheme reporting. If the grant-date fair value is wrong, the profit and loss is misstated in every year of the vesting period, which surfaces at the first audit or in due diligence at the next round.
A capital raise makes the same questions urgent. The round price becomes the reference point for every grant that follows, but investors almost always take preference shares, and the ordinary shares employees receive are worth less than the preference price. A company that sets an exercise price at the round price may be pricing options above market value, or may be defeating the start-up concession it is relying on, without anyone noticing until the ATO or an auditor asks.
We provide both numbers, separately documented, for founders, boards and their advisers across the Tech Central precinct, Macquarie Park and the established private companies of Greater Sydney. Where the evidence does not support the position the company wants to take, we say so before the grants are made rather than after.
A certified valuer will listen to your situation and answer any questions you may have, at no cost.
Division 83A decides when, and on what amount, the employee pays tax. AASB 2 decides how much expense the company records and over what period. A single exercise that tries to do both produces a number that is wrong for at least one of them, and often for both.
The discount on a share scheme interest, its market value less anything the employee paid, is assessable income. By default it is taxed in the year the interest is acquired. Where the scheme satisfies the deferral conditions, tax is pushed out to a later taxing point, broadly when the risk of forfeiture and any genuine restriction on sale fall away, subject to a fifteen-year limit. Whichever date applies, a market value is needed on that date.
Subdivision 83A-33 removes the upfront tax for qualifying companies: unlisted, incorporated for less than ten years, Australian resident, with aggregated turnover of no more than $50 million. The discount on shares cannot exceed 15 per cent of market value, and an option's exercise price cannot sit below the market value of the underlying share on the day it is granted. Both limits are measured against a value that has to exist on that day.
Equity-settled awards are measured once, at the grant date, and expensed over the vesting period with no later change for the share price. Cash-settled awards such as phantom shares are remeasured at every reporting date. Service conditions and non-market hurdles run through the vesting estimate and reverse if they are not met. Market hurdles, such as a total shareholder return target, are built into the grant-date value and are never reversed, even when the hurdle is missed.
Employers must give each participating employee an ESS statement by 14 July and lodge the ESS annual report with the ATO by 14 August, and both need the market value figures. In New South Wales, shares and options granted to employees are also wages for payroll tax purposes, valued on the grant date or the vesting date depending on the election made and administered by Revenue NSW. That can be a third valuation date for the same award.
For qualifying start-ups the ATO publishes safe harbour valuation methods, including a net tangible assets approach for shares and a table for options based on the share value, exercise price and remaining term. They give certainty, which has real worth, but the figure they produce can be a long way from what the equity would actually fetch. Where the safe harbour is unavailable, or clearly unrealistic, market value has to be established under general principles: the price that a buyer and a seller, both willing, both informed and neither under pressure, would agree at arm's length.
For an unlisted company the starting point is the value of the whole business, using the income and market approaches, or the most recent arm's length round where one exists and nothing material has changed since. That figure is then allocated across the share classes. A waterfall distributes value in order of liquidation preference and suits a company close to an exit. The option pricing method treats each class as an option over the business with strike prices set by the preferences, and a backsolve calibrates that model to the price investors actually paid. The backsolve is the usual route to a defensible ordinary share value after a raise.
Options and performance rights then need an option pricing model. Black-Scholes is adequate for a plain option with a fixed exercise price. A binomial lattice is better where early exercise or staged vesting matters. Monte Carlo simulation is required where a market hurdle or a path-dependent payoff is involved. The input an auditor questions first for an unlisted company is volatility, because there is no share price history, so it is built from a documented peer group of listed companies matched on industry, size and gearing, measured over a period aligned to the expected life of the award. A loan-funded share plan, where the employee buys shares with a limited-recourse loan from the company, is an option in substance and is valued as one whatever the legal form.
At a raise the same analysis answers the founders' questions. What does the headline pre-money valuation mean once the option pool is created before the money comes in, the convertible notes and SAFEs convert at their discount or cap, and the preference stack sits above the ordinary shares? What is an ordinary share worth on the day of the grant? For the early stage innovation company offset, the company must satisfy the early stage test and either the 100-point innovation test or the principles-based test at the time the shares are issued. Eligibility is a tax question that your adviser leads. We supply the market sizing, scalability and competitive evidence the principles-based limbs call for, prepared at the time and kept on file. Where debt is part of the funding, a lender-facing valuation covers enterprise value for facility sizing, the assets taken as security and the headroom on proposed covenants.
Most of these are only discovered at the first audit, the next round or an ATO review, when the grant terms can no longer be changed.
Employee equity work almost always ends up in front of a third party: an auditor testing the AASB 2 expense, the ATO reviewing the ESS annual report or the start-up concession, or an investor's due diligence at the next round. That makes a certified report the usual answer. An Indicative valuation still has a place at the planning stage, before terms are fixed.
The report states which framework each conclusion is for, the valuation date that framework requires, the standard of value and the information relied on. It sets out the business valuation and the allocation across classes, the model chosen for each award and why, every input with its source, and the sensitivity of the result to the inputs that matter most, usually volatility and expected term. Where the two frameworks diverge, the report reconciles them so that your auditor and your tax adviser are reading the same document.
Every report is signed by a certified valuer who will take the auditor's questions directly, explain the peer group and the model choice, and stand behind the conclusion if the ATO or a later investor tests it. We work alongside your tax adviser, the lawyers drafting the plan and your auditor, because a valuation delivered without them tends to need redoing.
If the auditor challenges the volatility input and the ATO challenges the exercise price, does the same file answer both? If it does not, the grant is not ready.
Talk your situation through with a certified valuer before you commit to anything, at no cost.