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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

8. Rescission, lapse or forfeiture of shares and options

On this page

Rescission

Shares or options granted under Employee Share Schemes (ESS) may be subject to vesting conditions, such as:

  • performance targets
  • length of service, or
  • continuation of employment.

If an employer:

  • elects the grant date as the relevant day, and
  • the shares or options are rescinded (before vesting) because the performance conditions attaching to the grant are not met,

the employer may reduce taxable wages in the financial year in which the grants are rescinded by the value of the grants (as previously returned).

See section 21(2) of the Payroll Tax Act 2007 (PTA).

 

Example: Grant date was elected as the relevant day and shares were subsequently rescinded

Blue Ltd granted some shares to an employee on 1 June 2020 with no consideration required. The market value of the shares at grant was $2,000. There were some performance conditions attached to the grant and the vesting period was 3 years.

The employer elected the grant date as the relevant day and declared $2,000 as liable wages in its annual return for FY 2020.

On 1 June 2023, the shares were rescinded because the performance conditions were not met. Blue Ltd may reduce its taxable wages by $2,000 in the annual return for FY 2023.

Lapse or forfeiture

Some schemes (normally option schemes) have an exercise component, which imposes an expiration date on those schemes. Expiration date is the date by which the employee must exercise the options.

Employees, who have ESS interests vested in them after performance conditions are met, may sometimes fail to exercise their rights attached to the grants by the expiration date. The ESS interests will be subsequently forfeited.

Where an employer has elected the grant date as the relevant day, the employer cannot reduce its taxable wages (by the amount arising from the grant that were previously declared) in the financial year in which the forfeiture occurs.

See section 21(3) of the PTA.