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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

  1. What is an Employee Share Scheme (ESS) interest?
  2. Declaring ESS interest for payroll tax
  3. Calculating wages arising from the grant of a share or option
  4. Restrictions on the disposal of shares and options and other conditions
  5. Consideration paid or given
  6. Shares and options granted in an overseas parent company and exchange rates
  7. Withdrawal, cancellation or exchange shares or options
  8. Rescission, lapse or forfeiture of shares and options
  9. Dividend equivalents
  10. Application of nexus provisions to ESS

3. Calculating wages arising from the grant of a share or option

On this page

The value of an Employee Share Scheme (ESS) interest to be declared for payroll tax is the value on the relevant day elected by the employer.

The method for calculating the value is detailed in section 23(1) of the Payroll Tax Act 2007 (PTA) as:

The value of the share or option (expressed in Australian currency) on the relevant day, less any consideration paid by the employee in respect of the share or option (other than consideration in the form of services performed).

Market value of a share or option

The value of the share or option is defined in section 23(2) of the PTA.

You may choose from the following valuation methods when valuing the shares or options:

If you commit a tax default by omitting the value of an ESS interest under the PTA, the Chief Commissioner of State Revenue may determine which valuation method must be used.

Listed ESS interests

Listed shares and options

The market value of a listed share on the relevant day elected by the employer is based on the value of the share on the stock exchange.

If a company grants publicly listed options under an ESS to employees, the market value of a listed option on the relevant day elected by the employer is the option premium on that day, on the stock exchange.

The closing price or weighted average selling price on the relevant day may be used for both shares, and options.

Unlisted ESS interests

Where ESS interests are unlisted, the shares or options are not traded in a marketplace.

You need to determine the market value of a share or option. For unlisted options, the amount can be determined using the Commonwealth income tax provisions.

Your valuation must be supported by evidence.

Valuations completed by professional valuers are more credible than those which are not. Professional bodies who provide certification and standards for valuers include:

The employer is required to keep the market valuation report and other documents to:

  • demonstrate the valuation was accurate and supported by evidence, and
  • include all information expected in a valuation report.

Commonwealth “safe harbour” methods

Some start-up companies use “safe harbour” methods to value shares or options for income tax purposes.

These methods do not provide a correct market value as they do not consider goodwill or intellectual property.

As a result, the Chief Commissioner does not accept these methods for the purpose of calculating a payroll tax value for unlisted ordinary shares.

Read Commissioner's Practice Note 013: Payroll Tax on shares & options - Payroll Tax Act 2007, ss.18 - 26 for more details.