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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

4. Restrictions on the disposal of shares and options and other conditions

When determining the market value of a share or option, anything that prevents or restricts the conversion of the share or option to money is not considered as relevant. See section 23(5) of the Payroll Tax Act 2007.

Apart from restrictions on the disposal of ESS interests, the words “prevent or restrict” together with the word “anything” in the provision demonstrates that the provision is intended to apply to a broad set of conditions, such as the:

  • imposition of a service period the employee must satisfy, or
  • deferral of dividend payments.

Example: Disposal restriction

An employer imposed a disposal restriction on the shares vested in the employees through an employee share scheme.

The employees cannot sell the shares within the first 6 months from the vesting date.

If the employer elects the vesting date as the relevant day for payroll tax, the employer should declare the market value of the shares at the vesting date, rather than the market value of the shares six months from the vesting date.

Further, the employer should disregard the disposal restriction when calculating the market value of the shares at the vesting date.