Payroll tax on shares and options schemes

You must include shares or options in your payroll tax return if they have been granted to:

Shares or options may be a fringe benefit or Employee Share Scheme (ESS) interest.

Declaring shares and options as fringe benefits

Shares and options may be a fringe benefit under the Fringe Benefits Assessment Act 1986 (Cwlth), if they are not defined as an employee share scheme interest under the Income Tax Assessment Act 1997 (Cwlth).

In that case, the value of these shares and options should be included as taxable wages under the fringe benefits provisions.

Learn more about payroll tax on fringe benefits.

Declaring ESS interests

If the share or option is an ESS interest within the meaning of the Income Tax Assessment Act, to calculate the value of these wages you must consider the 'relevant day', which is:

  • the day a share or option is granted to a person
  • or

  • the day they vest in a person.

Declaring the relevant day

You must declare the value of any shares and options in the payroll tax return period for the period in which the relevant day falls.

You can usually choose either the grant day or the vesting day as the relevant day to declare the value of a share or option, but there are situations where the relevant day is automatically chosen.

When the relevant day is automatically chosen

Relevant daySituation When share or option should be declared

Grant day

  • The market value of the share or option is nil
  • Your wages are not liable for payroll tax

Return period that includes the grant day

Vesting day

  • The value of the shares and options was not included in the return period containing the grant date

Return period that includes vesting day

The granting of a share or option can occur under various events. In general, a grant occurs if a person acquires a share or, in the case of an option, a right to the share.

Vesting day for shares and options

SharesOptions

The vesting day of a share is the earlier of the following:

  • the day all conditions applying to the grant are satisfied and the employee has a legal or beneficial interest in the shares that cannot be rescinded
  • or

  • 7 years after the day the share is granted

The vesting day of an option is the earliest of the following:

  • the day the share that is subject to the option is granted
  • or

  • the day the employee exercises the option
  • or

  • 7 years after the day the option is granted

Taxable wages in Queensland

As payroll tax is administered in each state and territory, you need to work out if the wages are taxable in Queensland. The nexus provisions generally indicate in which Australian jurisdiction payroll tax should be paid.

Overseas-based employee or employer

If the employee and employer are not based in Australia during the return period that applies to the relevant day, the shares or options are taken to be Queensland taxable wages if the share or option is in a company registered in Queensland under section 119A of the Corporations Act 2000.

Read the public ruling on payroll tax nexus provisions (PTA039).

Example

An employee is employed by Overseas Pty Ltd. He does not have a principal place of residence in Australia, and Overseas Pty Ltd does not have an ABN address or a principal place of business in Australia during the month of June.

The employee performed services in New South Wales and Victoria. During this time he was granted shares in a Queensland company, related to Overseas Pty Ltd. The relevant day for this transaction was 15 June.

The shares are taxable in Queensland because the company is registered in Queensland, even though the employee usually lives overseas and was paid wages by a company outside an Australian jurisdiction in the month containing the relevant day.

Taxable value in Queensland

The value of taxable wages consisting of a share or option must be calculated as follows:

  • the value of the share or option on the relevant day
  • minus

  • any contribution the employee pays for the share or option (excluding payment in the form of services performed).

To determine the value of a share or option, you must use the market value of that share or option, or the amount determined under the regulations of the Income Tax Assessment Act.

Refund on withdrawn shares and options

You may get a refund if a share or option you granted to an employee is withdrawn, cancelled or exchanged for something that is not a share or option before the vesting day.

If you paid payroll tax on withdrawn shares or options, your taxable wages in the financial year or final period in which this happened will be adjusted by the value of the withdrawn shares or options.

Shares or options that are forfeited or lapse are valued as nil at the 7-year vesting date, because the share or option does not exist at the time.

You cannot get a refund if the share or option expires just because the employee fails to exercise the rights attached to it.