Shares and options

Before 1 July 2007, the value of shares and options granted to employees was not subject to payroll tax.

From 1 July 2007, the value of an employer's contribution to any grant of a share or option to an employee or deemed employee, a director or former director or member (or former member) of the governing body of the company is subject to payroll tax.

The granting of a share or an option occurs if a person acquires a share or, in the case of an option, a right to the share.

The value of the share or option becomes liable on the relevant day and the employer can elect to treat the relevant day as either the date that the share or option is granted to the employee or the vesting date.

The vesting date for a share is the date when any conditions applying to granting the share have been met and the employee's legal or beneficial interest in the share cannot be rescinded. From 1 July 2011, the vesting date for a share is the earlier of either the date as defined above or the date at the end of the 7 years from the date on which the share is granted to the employee.

The vesting date for an option is the earlier of one of the following dates:

when the share to which the option relates is granted to the employee, or
when the right under the option to have the relevant share transferred, allotted or vested is exercised by the employee, or
the date at the end of the period of 7 years from the date on which the option is granted to the employee.

If the grant of a share or option constitutes wages, the amount paid or payable as wages is taken to be the value of the share or option (expressed in Australian currency) on the relevant day, less the consideration (if any) paid or given by the employee in respect of the share or option (other than consideration in the form of services performed). The value of a share or an option is either the market value or the amount determined in accordance with the income tax provisions contained in section 83A of the Income Tax Assessment Act 1936 (Cth).

If an employer does not include the value of a grant of a share or option in its taxable wages for the financial year in which the grant occurred, the wages constituted by the grant are taken to have been paid or payable on the vesting date of the share or option.

The employer may reduce the taxable wages declared by the value of any previously declared share or option value if the grant of a share or option was rescinded because the vesting conditions were not met. This reduction in the taxable wages would not apply in circumstances where the employee decided not to exercise the option.

If the grant of a share or option is withdrawn, cancelled or exchanged before the vesting date for some valuable consideration other than a share or option, the date on which that occurs is deemed to be the vesting date and the taxable amount is taken to be the value of the consideration.

If the granting of a share or option is classified as a fringe benefit under the Fringe Benefits Tax Assessment Act 1986, then it is to be treated as a fringe benefit for payroll tax purposes.

Shares and options offset

Employers are able to offset the value of any over declared shares or options from a previous financial year by including the amount to be offset in the Shares/Options Offset field.

This scenario may result where shares or options are granted to an employee that may have certain conditions attached to them that the employee needs to meet in order to have the shares or options allocated to them, such as performance targets. If the employee does not meet the criteria and the employer has declared the taxable value at the granting date, the employer will need to offset the over-declared amount, rather than seek a refund.

However, no reduction is available if options expire merely because they were not exercised by the relevant date or because the person fails to exercise his/her rights in respect of a share or option.