Shares and options calculation examples for payroll tax
Use these examples as guidance when declaring the value of shares and options granted to employees as wages for payroll tax in NSW.
These examples cover a range of complex scenarios where an employee’s salary package consists of Employee Share Scheme (ESS) interests.
Visit the shares and option page for more general information.
Restricted stock units with dividend equivalent payments
Two senior managers have access to a restricted stock unit (RSU) scheme.
The RSUs are offered by the US-based parent company.
The RSUs have a 3-year vesting period, therefore, 33.33 percent of each grant will vest on the anniversary date of the grant each year, for 3 years.
The senior managers are entitled to dividend equivalent payments, which are:
- paid in the form of additional shares (i.e. dividend equivalent units), and
- distributed in each corresponding vesting distribution.
For any residual dividend amount that is insufficient to purchase a full share in dividend equivalent units (DEU), the payment is:
- converted to Australian dollars, and
- made to the managers via payroll.
Date | Historical share price (USD) | Historical daily exchange rate (AUD/USD) |
---|
23 March 2019
|
$10.00
|
0.7106
|
23 March 2020
|
$12.00
|
0.5853
|
23 March 2021
|
$13.50
|
0.7700
|
23 March 2022
|
$15.00
|
0.7459
|
Each manager was granted 900 RSUs on 23 March 2019, which will vest in 3 equal instalments on the anniversary date of the grant for 3 years, assuming they continue working for the company for the next 3 years.
The vesting schedule is:
Award type: RSU | Manager 1 | Manager 2 | Number of shares |
---|
23 March 2019
|
900 (grant)
|
900 (grant)
|
1,800
|
23 March 2020
|
300 (vest)
|
300 (vest)
|
600
|
23 March 2021
|
300 (vest)
|
300 (vest)
|
600
|
23 March 2022
|
300 (vest)
|
300 (vest)
|
600
|
If the grant date was elected by the employer to declare the ESS taxable values, the total taxable values for the 2019 tax year is calculated as:
Transaction date |
23 March 2019
|
---|
Award number |
1,800
|
---|
Share price on award date (USD) |
$10.00
|
---|
Employee contribution per share (USD) |
$0.00
|
---|
Total taxable values (USD) |
$18,000.00
|
---|
Exchange rate |
0.7106
|
---|
Total taxable values (AUD) |
$25,330.71
|
---|
If the taxable values at the grant were not declared in the payroll tax return for the 2019 financial year, the employer has elected the vesting date as the relevant date.
If the vesting date was elected by the employer to declare the ESS taxable values, the total taxable value that should have been declared for this ESS in each relevant year is:
Transaction date | 23 March 2020 | 23 March 2021 | 23 March 2022 |
---|
Award number |
600
|
600
|
600
|
---|
Share price on award date (USD) |
$12.00
|
$13.50
|
$15.00
|
---|
Employee contribution per share (USD) |
$0.00
|
$0.00
|
$0.00
|
---|
Total taxable values (USD) |
$7,200.00
|
$8,100.00
|
$9,000.00
|
---|
Exchange rate |
0.5853
|
0.7700
|
0.7459
|
---|
Total taxable values (AUD) |
$12,301.38
|
$10,519.48
|
$12,065.96
|
---|
The vesting schedule for dividend equivalent units (DEU) is presented below:
Awards type: DEU | Manager 1 | Manager 2 | Total DEU |
---|
23 March 2019 |
N/A
|
N/A
|
N/A
|
---|
23 March 2020 |
8
|
8
|
16
|
---|
23 March 2021 |
8
|
8
|
16
|
---|
23 March 2022 |
8
|
8
|
16
|
---|
The taxable value of the DEU that should have been declared each relevant year, regardless of whether the grant date or the vesting date was elected for the RSUs, is:
Transaction date | 23 March 2020 | 23 March 2021 | 23 March 2022 |
---|
Award number |
16
|
16
|
16
|
---|
Share price on award date (USD) |
$12.00
|
$13.50
|
$15.00
|
---|
Employee contribution per share (USD) |
$0.00
|
$0.00
|
$0.00
|
---|
Total taxable values (USD) |
$192.00
|
$216.00
|
$240.00
|
---|
Exchage rate |
0.5853
|
0.7700
|
0.7459
|
---|
Total taxable values (AUD) |
$328.04
|
$280.52
|
$321.76 |
---|
Please note
Any residual dividend paid in the form of cash through payroll should have been declared as part of normal taxable wages.
Long term incentive plans with performance hurdles
Options rescinded and options deemed liable 7 years after grant
In 2019 a US-based parent company, Financially Stable Inc., provided a long-term incentive plan (LTIP) to two senior managers employed by an Australian subsidiary Financially Stable NSW Pty Ltd. The LTIP is performance-based and runs for 3 years.
At the end of the yearly performance period, each option entitles the managers to acquire one share at the exercise price. In this case, the market price of a share at grant date.
At the end of the 3-year period, the managers will receive details of the number of shares they have achieved. They will have two choices:
- exercise the options immediately, or
- exercise the options at a later date of their choosing.
The options can be exercised up to 10 years from the date of grant.
Date | Historical share price (USD) | Historical daily exchange rate (AUD/USD) |
---|
16 May 2019
|
$9.30
|
0.6914
|
16 May 2022
|
$13.60
|
0.6889
|
20 April 2023
|
$15.40
|
0.6715
|
Each manager was granted 1,000 options under the long-term incentive plan on 16 May 2019. On the vesting date (16 May 2022), the number of options vested was based on performance.
Award type: LTIP | Manager 1 | Manager 2 |
---|
Number of options granted (16 May 2019)
|
1,000
|
1,000
|
Number of options vested and exercised (16 May 2022)
|
800 vested (100% exercised on the same day)
|
750 vested (350 exercised on 20 April 2023, 400 not yet exercised)
|
Number of options rescinded (16 May 2022)
|
200
|
250
|
Assume the value of each option is US$1.87. If the grant date was elected by the employer to declare the ESS taxable values, the total taxable value for the 2019 tax year is calculated as:
Transaction date |
16 May 2019
|
---|
Award number |
2,000
|
---|
Value per option at grant (USD) |
$1.87
|
---|
Employee contribution per option |
N/A
|
---|
Total taxable values (USD) |
$3,740.00
|
---|
Exchange rate |
0.6914
|
---|
Total taxable values (AUD) |
$5,409.31
|
---|
If the taxable values were included in the year of grant, the employer is entitled to a reduction of $1,217.10 in its total NSW taxable wages since a total number of 450 options were rescinded on 16 May 2022.
Transaction date |
16 May 2022
|
---|
Rescinded number |
450
|
---|
Value per option at grant (USD) |
$1.87
|
---|
Employee contribution per share |
N/A
|
---|
Total taxable values included (USD) |
$841.50
|
---|
Exchange rate used |
0.6889
|
---|
Total taxable values (AUD) |
$1,221.51
|
---|
If the vesting date was elected by the employer to declare the ESS taxable values, the values of the options are to be declared at the date that the employee exercises the option.
For each employee, the relevant years that the values should have been declared for each employee are:
Date | Manager 1 | Manager 2 |
---|
16 May 2022
|
$4,993.47 (exercised 800 options)
|
Nil
|
20 April 2023
|
N/A
|
$3,179.45 (exercised 350 options)
|
16 May 2026
|
N/A
|
Future value (400 deemed exercised options)*
|
*Applicable if the 400 options are still outstanding as at 16 May 2026 (not yet exercised).
16 May 2026 is the date at the end of the period of 7 years from the date that the option was granted to Manager 2.
Therefore, this is the deemed vesting date of the 400 options.
Relevant taxable values for payroll tax purposes need to be declared based on relevant share price and exchange rate on the day in the annual return for the 2026 tax year.
Transaction date | 16 May 2022 | 20 April 2023 |
---|
Award number |
800
|
350
|
---|
Share price on the exercise date (USD) |
$13.60
|
$15.40
|
---|
Exercise price per share (USD) |
$9.30
|
$9.30
|
---|
Total taxable values (USD) |
$3,440.00
|
$2,135.00
|
---|
Exchange rate |
0.6889
|
0.6715
|
---|
Total taxable values (AUD) |
$4,993.47
|
$3,179.45
|
---|
Employee share participation plans
After tax employee contributions
Eligible company employees in Consistent Investments NSW Pty Ltd are invited to participate in a plan called the employee share participation plan.
The saving period is 1 year starting from 1 June each year and finishes on 31 May the following year.
On the first trading day right after the saving period, the contributions will be used to acquire shares in the US-based parent company Consistent Investments Inc.
The purchase price is predetermined at 15 per cent discount off the closing share price on the first trading day of the saving period. The differences will be contributed by the company.
As soon as the shares are acquired, they will be allocated to the participant’s account.
There is no holding period or any condition applicable to these shares and the participants become the beneficial owner of the shares from the date when they were purchased, including the right to vote and receive dividends.
Taking the 2021 tax year as an example: the saving period started on Monday 1 June 2020 and finished on Monday 31 May 2021. The shares were purchased on Tuesday 1 June 2021.
Date | Historical share price (USD) | Historical daily RBA exchange rate (AUD/USD) |
---|
1 June 2020
|
$10.50
|
0.6742
|
1 June 2021
|
$13.55
|
0.7744
|
In total there were 50,000 shares acquired on behalf of NSW employees.
The total taxable amount that should have been declared for the 2021 financial year is:
Transaction date |
1 June 2021
|
---|
Purchase number |
50,000
|
---|
Share price on purchase date (USD) |
$13.55
|
---|
Employee contribution per share (USD)* |
$8.925
|
---|
Total taxable values (USD) |
$231,250.00
|
---|
Exchange rate |
0.7744
|
---|
Total taxable values (AUD) |
$298,618.29
|
---|
*$10.50 × (100% - 15%) = $8.925
In this example, the share grant date is also the share vesting date.
Any future dividends paid on these shares are not subject to payroll tax because the dividends are received by the participants as normal shareholders.
Phantom share schemes
An Australian company with UK-based parent company listed on the London Stock Exchange offers two types of schemes to employees:
- Restricted stock unit (RSU).
- Performance right plan (PRP).
According to the plans, as an international participant, NSW-based employees do not have the choice to receive the shares.
They receive cash bonuses equivalent to the amount of the corresponding vested shares under each plan. The payments are made through normal payroll as part of the bonus.
Without a share or a right to acquire a beneficial interest in a share in the company:
Both schemes are regarded as phantom share schemes.
The bonus is subject to payroll tax as a normal wage item under section 13 of the PTA.
Contact the payroll tax team
If you have questions about this topic call 1300 139 815 or +61 2 7808 6904 for international callers.
You can also email [email protected]