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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

5. Consideration paid or given

On this page

Fees

Fees incurred by an employee to acquire Employee Share Scheme (ESS) interests are treated as consideration paid.

 

Example: Consideration paid to acquire ESS interests

An employee contributes $10,000 to acquire shares from the employer under an ESS. The total market value of the shares is $12,000.

The employer should declare $2,000 ($12,000 – $10,000) as taxable wages arising from the acquisition of shares.

Valuing options on vesting date

Exercise price paid by the employee to acquire a share or shares when exercising an option is treated as consideration.

Before tax salary contribution

If an employee makes a before income tax contribution to acquire ESS interests, this contribution is not treated as consideration paid or given when calculating the taxable value of ESS interests for payroll tax.

 

Example: Before tax salary contributions

An employee receives a salary package comprising of $90,000 in cash plus 10,000 shares which are an ESS interest. The employer elects to pay payroll tax on the grant of the shares, which are valued at $12,000 on the day they are granted.

The employer should declare $12,000 as taxable wages arising from the grant of shares and $90,000 as normal salary and wages.

After tax salary contribution

If an employee makes an after-tax contribution to acquire an ESS interest, this contribution is treated as consideration when calculating the taxable value of ESS interests for payroll tax.

 

Example: After tax salary contributions

An employee contributes $10,000 from his after-tax salary to acquire shares under an ESS. The shares are an ESS interest and have a market value of $15,000.

The employer should declare $5,000 ($15,000 - $10,000) as taxable wages arising from the acquisition of shares.

Employer loan

Some employers provide a loan to employees to acquire ESS interests.

This loan constitutes consideration given in the calculation of taxable values for payroll tax irrespective of whether it is repaid.

 

Example: Employer loan funded ESS

An employer offers a loan funded share plan to its employees. Participants in the plan will be loaned money by the employer to buy shares of the company.

The loan has no interest or other charges payable. The plan meets the definition of an ESS. The employer invites employee A to purchase 10,000 shares which are valued at $30,000 and the employee can apply for a $28,000 loan to fund this purchase.

The shares issued under the loan funded ESS plan are subject to payroll tax under section 18 of the Payroll Tax Act 2007.

When calculating the wages arising from the grant of the shares, the employer funded loan constitutes consideration given by the employee. In this situation, the taxable value arising from the grant is $2,000.