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. This includes 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.
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 vesting day of options is the earliest of either:
The seven-year rule applies only when the grant date is after 2 July 2007. Even if shares and options have not been vested or exercised, they are 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 is not liable for payroll tax.|
|The value of the share or option was not reported at grant date||Vesting date|
Because payroll tax is levied in all states and territories, you need to work out if the wages are taxable in NSW. The nexus provisions indicate the Australian jurisdiction where payroll tax should be paid.
Inbound expatriates are foreign nationals working in Australia. They are sometimes called inpats. Outbound expatriates are Australian nationals working overseas, often called expats.
Shares or options are not liable for payroll tax if, at grant date, the employee was providing services overseas and there is 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 do not 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 is no connection with Australia and as a result they are 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 6 months. If the employee works overseas for more than 6 months they are 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 are not in a local company and as a result are not paid or payable in an Australian jurisdiction. The employee is also working in another country and the time of vesting. They are not liable.
Note, a local company includes a company registered under the Corporations Act 2001.
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.
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, you can 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 that 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 that the current year’s rate is used to make an adjustment in your annual reconciliation.
You may be eligible for a refund if a share or option granted to an employee is exchanged for something that is not 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 are payments set aside for shares which have been allotted to employees but have not 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.
You can identify whether you have liable shares and options by:
Keeping clear records will help you meet your payroll tax obligations. This includes: