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The Payroll tax guide: Shares and options provides detailed information and examples about Employee Share Scheme interests and payroll tax in New South Wales. For more general information read the shares and options page. We advise that you read this guide with:

Chapters

10. Application of nexus provisions to ESS

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Payroll tax is levied in all states and territories.

You must work out when the wages are taxable in NSW.

Nexus provisions in the Payroll Tax Act 2007 (PTA) set out the rules for determining the jurisdiction where wages are taxable.

Revenue Ruling 039: Payroll tax nexus provisions also explains how to apply these rules.

The question of which jurisdiction a payroll tax liability arises on a grant of an Employee Share Scheme (ESS) interest depends on where the employee provides services in the month during which the relevant day falls.

Services provided wholly in NSW on both grant and vesting date

In cases where an employee performs services wholly in NSW during the month the:

ESS interests are granted, and
ESS interests vest,

wages arising from the grant are taxable in NSW on either grant or vesting date depending on which date the employer chooses as the relevant date.

The employer needs to declare the liable wages arising from the grant on the relevant day elected.

Services provided partially in NSW and other jurisdictions

In cases where an employee performs services during the month in which the relevant day occurs:

partially in NSW, and
partially in one or more other jurisdictions, or overseas,

the employer must follow multi-tiered tests to determine whether the wages arising from the grant are subject to payroll tax in NSW or another jurisdiction.

Read Revenue Ruling 039: Payroll tax nexus provisions for more details about the multi-tiered tests.

The employer may have to consider various factors when performing the tests, including:

the employee’s principal place of residence
the employer’s registered ABN address/principal place of business in Australia
the place where the wages are paid to the employee, or
the place where the services are mainly performed.

When determining the place where the wages are paid to the employees under section 26(1) of the PTA, wages in the form of shares or options are paid in NSW if:

the company in which the share or option is granted is incorporated or is taken to be incorporated under the Corporations Act 2001 and is registered in NSW, or
any other body corporate that is incorporated under a NSW Act.

Examples

Open the headings below to view examples of services performed partially in NSW during the month in which the relevant day occurs.

In NSW and another Australian jurisdiction

An employee normally works in both NSW and Victoria in any given month to perform his job.

His principal place of residence (PPR) is in NSW.

In May 2023 his employer granted him some shares under an ESS. The employer elected the grant date as the relevant day.

The wages arising from the grant are taxable in NSW on the relevant day elected by the employer because payroll tax is payable in the Australian jurisdiction in which the employee’s PPR is located in that month.

In NSW and an overseas country

An employer granted some shares to an employee under an ESS when the employee was performing services in NSW.

The employer elected the vesting date as the relevant day.

In the month the shares vested, the employee was on a one-week business trip overseas.

Therefore, in the month the vesting date fell, the employee performed services partially in NSW and partially overseas.

The principal place of residence (PPR) of the employee is in NSW.

The wages arising from the ESS interests are taxable in NSW on the vesting date because the PPR is in NSW.

Services provided wholly overseas during the month the grant date falls

When an employee is performing services wholly overseas in the month the grant date falls, the first thing the employer needs to confirm is the value of the share or option at grant.

If the value of the ESS interests at grant is nil:

the deeming provision in section 20(2) of the PTA applies, and
the employer is taken to have elected the grant date as the relevant date.

There are no taxable wages to declare at either grant or vesting date.

Examples

The following examples illustrate the application of section 20(2) of the PTA in two common scenarios when an employee is granted ESS interests while performing services overseas.

Open the headings below to read examples of shares granted in different types of companies.

A local NSW based employer

An employee is granted shares in a local NSW based employer while the employee is performing services overseas for a continuous period of more than 6 months.

Under section 26(1) of the PTA the grant of shares is considered to be a payment of wages in NSW on that date.

At grant, the wages are exempt under section 66A of the PTA because the employee is working overseas for a continuous period of more than 6 months.

At vest, there is no payroll tax liability because the wages are exempt at the grant date. The deeming provision under section 20(2) of the PTA applies.

An overseas parent company

An employee is granted shares in an overseas parent company while the employee is performing services overseas.

The employee later relocates to NSW. The shares vest when the employee is performing services in NSW.

Under section 26(1) of the PTA the grant of shares is considered to be a payment of wages paid outside all Australian jurisdictions because the shares are in an overseas company. As a result, the value of wages arising from the grant is nil as it has no nexus to NSW.

There is no payroll tax liability at vest either because the value of the ESS interests at the grant date is nil and the deeming provision under section 20(2) of the PTA applies.

Services provided wholly overseas during the month the relevant date falls

If section 20(2) of the PTA does not apply, in the case where an employee performs services wholly overseas during the month the relevant day falls, the employer needs to consider the following facts to determine if there is a payroll tax liability in NSW arising from a grant of ESS interests:

Whether the share or option is issued by a local or overseas company.
If the shares or options granted are in a local company registered in NSW, the length of time (i.e., up to six months or longer than six months) the employee provides services overseas.

Examples

Open the headings below for examples of services provided wholly overseas for less than 6 months when shares are granted in different types of companies.

A NSW based company

An employer grants shares in a NSW based local company to an employee on 15 March 2023, when the employee is working overseas on a 4-week assignment.

Under section 26(1) of the PTA the grant of shares is considered to be a payment of wages in NSW on that date.

The wages are not exempt under section 66A of the PTA because the employee does not work overseas for a period exceeding 6 months.

If the employer:

elects to pay tax on the grant of the shares, the employer must include the taxable value of the shares in its next payroll tax return.
does not elect to pay tax on grant, the value of the shares on the vesting date must be included in the next payroll tax return following vesting.

A local company registered in Victoria

An employer grants shares in a Victorian based local company to an employee when the employee is performing services overseas on a 4-week assignment.

The employer elects the grant date as the relevant day.

Under section 26(1) of the PTA the grant of shares is considered to be a payment of wages in Victoria on that date.

The wages are not exempt under section 66A of the PTA because the employee does not work overseas for a period exceeding 6 months.

The wages will be interstate wages for the employer to declare in its NSW payroll tax return.

A NSW based company – vested whilst overseas

An employer grants shares in an NSW based local company to an employee when the employee is performing services wholly in NSW.

The employer elects the vesting day as the relevant day.

On the vesting day, the employee is performing services overseas on a 1-year assignment.

Under section 26(1) of the PTA, the grant of shares is considered to be a payment of wages in NSW on that date.

The wages are exempt under section 66A of the PTA because the employee works overseas for a continuous period of more than 6 months.

An overseas parent company

An employer grants shares in its overseas based parent company to an employee when the employee is performing services wholly in NSW during the month of grant.

Later the employee is assigned to work overseas for a number of years. The employee is working overseas when the shares vest.

If the employer elects the grant date as the relevant day, under section 26(1) of the PTA, the grant of shares is considered to be a payment of wages in NSW on that date.The employer must include the taxable value of the shares in its next payroll tax return.

If the employer elects the vesting date as the relevant day, the wages constituted by the shares are considered to be paid outside all Australian jurisdictions hence there is no payroll tax liability.

No services provided during the month the relevant day falls

If an employee does not perform any services to his or her employer during the month in which wages arise from an ESS interest, the wages are deemed to be paid or payable in the jurisdiction in the most recent prior month that services were performed by the employee for the employer.

See section 11(4) of the PTA.

Example

Open the heading below to read the example of when the vesting date is elected as the relevant day and no services were performed in the month the relevant day falls.

No services performed

An employer granted options to an employee when the employee was performing services wholly in NSW in December 2021.

The employer elected the vesting date as the relevant day.

A condition of the grant allows the employee to exercise the options within 12 months from the grant date and the employee can still exercise the options even if the employee ceases employment with the company, provided the employee leaves the company as a ‘good leaver’.

In July 2022 the employee left the employer and he subsequently exercised the option in September 2022.

Because the employee did not provide any services to the employer in the month the options were exercised, the wages arising from the ESS interests are deemed to be paid in the jurisdiction in the most recent prior month that services were performed by the employee for the employer.

As the employee wholly performed services in NSW in July 2022 before he resigned, being the most recent month in which he performed services for the company, the wages arising from the ESS interest are taxable in NSW.