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Shares or options granted are considered wages if they are through an Employee Share Scheme (ESS) interest under the Income Tax Assessment Act 1997 (ITAA). The ITAA applies when an employee acquires a beneficial interest in the shares or options granted, including shares or options granted by the employer’s holding or parent company.
Where shares or options are granted to an employee, you must declare the value as wages for payroll tax purposes.
Relevant day
Taxable wages from the grant of a share or option are taken to be paid or payable on the relevant day.
You can choose either the grant day or the vesting day as the relevant day.
Grant date
Vesting of shares
Vesting of options
The grant date is when the employee acquires a legal or beneficial interest in the share or option
The vesting date of shares is the earliest of either:
the day all conditions applying to the grant are satisfied and the employee has a legal or beneficial interest in the shares that can't be rescinded
seven years after the date the share is granted
The vesting day of options is the earliest of either:
the day the employee exercises the right to have the share that is the subject of the option transferred to, allotted to, or vested in them
seven years after the date the option is granted
The seven-year rule applies only when the grant date is after 2 July 2007. Even if shares and options haven't been vested or exercised, they're considered vested seven years from the grant date.
In some cases, the relevant day is automatically chosen.
Situation
When share or option should be declared
The market value of the share or option on grant date is nil
The share or option isn't liable for payroll tax.
The value of the share or option wasn't reported at grant date
Vesting date
Taxable wages in NSW
Because payroll tax is levied in all states and territories, you must work out if the wages are taxable in NSW. The nexus provisions indicate the Australian jurisdiction where payroll tax should be paid.
Inbound and outbound expatriates
Inbound expatriates are foreign nationals working in Australia. They are sometimes called inpats. Outbound expatriates are Australian nationals working overseas, and are often called expats.
Shares or options aren't liable for payroll tax if, at grant date, the employee was providing services overseas and there's no connection with Australia.
If an employee was in Australia at grant date and overseas at vesting date, and you elect the vesting date as the relevant day, the nexus provisions determine your liability for the taxable value.
We don't accept pro rata calculations of the taxable value for payroll tax.
An employee performing services overseas is granted shares. The employee is transferred to NSW. The shares vest when the employee is performing services in NSW.
At the time of the grant, there's no connection with Australia and, as a result, they're not liable for payroll tax.
The employer is incorporated in NSW. Shares are granted when an employee is performing services wholly in NSW. The employer elects the vesting date as the relevant day. At vesting, the employee is performing services wholly in another country.
The shares are liable for payroll tax in the country where the company is incorporated, and if the employee performs services overseas for less than six months. If the employee works overseas for more than six months, they're not liable.
Shares in an overseas parent company are granted to an employee of an Australian subsidiary, who is performing services wholly in NSW. The employer elects the vesting date as the relevant day. At vesting, the employee is performing services wholly in another country.
The shares aren't in a local company and, as a result, aren't paid or payable in an Australian jurisdiction. The employee is also working in another country and, at vesting, they're not liable.
Shares in an overseas parent company are granted to a person employed in an Australian subsidiary, who is performing services wholly in NSW. The employer elects the vesting date as the relevant day. At vesting, the person is performing services wholly in NSW.
The shares are liable for payroll tax, as the employee is performing services wholly in NSW when the shares vest.
Taxable value
The amount you declare for payroll tax is the difference between the value of the share or option on the relevant day and any consideration the employee pays for the share or option.
The value of the share or option is either the market value or the amount determined in accordance with the Commonwealth income tax provisions in Division 83A of the Income Tax Assessment Regulations 1997 (ITAR).
Taxable wages must be displayed in Australian dollars. If you need to convert the taxable value to Australian currency, use either the Reserve Bank of Australia exchange rate as at the relevant day or the Australian Taxation Office yearly average exchange rate for the financial year in which the relevant date falls. As per Revenue Ruling PTA 039, the previous year’s ATO figure can be applied for the purposes of making monthly returns, provided the current year’s rate is used to make an adjustment in your annual reconciliation.
Refund or withdrawn shares and options
You may be eligible for a refund if a share or option granted to an employee is exchanged for something that isn't a share or option, withdrawn or cancelled before vesting date.
If you chose to declare the taxable value at the grant date and the share or option is rescinded before the conditions are met, you can deduct the value of wages previously declared in the financial year the share or option was rescinded.
Dividend equivalents
Dividend equivalents are payments set aside for shares that have been allotted to employees but haven't vested when dividends are paid to shareholders.
These payments are considered liable wages for payroll tax.
Dividend equivalent payments made while an employee is providing services in NSW are still liable for payroll tax, even if an employee is overseas at the grant date.
View the nexus provisions to see whether dividend equivalent payments are liable wages in NSW.
Tips and common errors
You can identify whether you've liable shares and options by:
having an Employee Share Scheme statement lodged with the Australian Taxation Office
speaking with senior and chief financial officers of Australian and overseas-related corporations to confirm ESS interests.
To help you meet your payroll tax obligations, keep records such as:
share plans, and note the key differences in each
tracking each share or option, until they've vested/exercised
noting the relevant day of each share or option
keeping clear workings when calculating the taxable value.
