Wages for the purposes of the Payroll Tax Act 2007 includes shares or options granted by the employer to employees or deemed employees (which can include contractors) and directors or former directors or members (or former members) of the governing body of a company.
Payroll tax applies to the value of an employer’s contribution to any grant of a share or option.
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, for the purposes of payroll tax, is its value on the relevant day.
Employers can elect to treat the relevant day as either the:
- Date that the share or option is granted to the employee, or
- Vesting date
Note: 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 employer is taken to have elected to treat the wages constituted by the grant as being paid or payable on the vesting date.
Vesting date for shares or options
Vesting date for a share
This is the date when any conditions which apply to granting the share have been met and the employee’s legal or beneficial interest in the share cannot be rescinded.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 seven years from the date on which the share is granted to the employee.
Vesting date for an option
This is the earlier of either one of the first two dates (and from 1 July 2011, one of the three dates). The dates are:
- 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
- From 1 July 2011, at the end of the period of seven years from the date on which the option is granted to the employee
Where a share or option granted after 1 July 2007 has not been declared for payroll tax purposes before 1 July 2011 (because the employer elects the relevant date to be the vesting date), the seven-year vesting date is the latest date for vesting unless the other specified vesting events occur before the end of the seven years.
Where the granting of a share or option constitutes wages, the amount of wages is the value of the share or option on the relevant day, less any consideration paid or given by the employee for the grant (excluding consideration in the form of services rendered).
The value of a share or an option is the market value or the amount determined as provided for in ss. 83A-315 of the Income Tax Assessment Act 1997 (Cth) and Division 83A of the Income Tax Assessment Regulations 1997 (Cth).
Withdrawing the grant of a share or option
Where 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.
Forfeited or lapsed shares or options
The seven-year vesting date still applies to shares and options that have been forfeited or lapsed prior to seven years from the grant date if the other specified events have not occurred for those cases where the employer has elected the vesting date as the relevant date.
However, as such shares/options have been forfeited or lapsed prior to seven years from the grant date, the value of the shares/options at the seven-year vesting date is regarded as being nil because the share/option does not exist at that time.
Rescinding the grant of share or option
Where an employer has included the value of a share or option it its payroll tax return based on the grant date and the grant is subsequently rescinded because the vesting conditions were not met, the employer may reduce the taxable wages in their current payroll tax return by the value of any previously declared share or option value. This reduction in the taxable wages would not apply in circumstances where the employee decided not to exercise the option.
ABC Pty Ltd granted shares to an employee in May 2014. The market value of the shares at the grant date was $2,000 and the employee did not pay any consideration for them. The grant of the shares is subject to the condition that the employee does not cease employment with ABC Pty Ltd within the next two years.
ABC Pty Ltd declares the value of the shares at grant date and includes $2000 of taxable wages in its May 2014 payroll tax return. The employee ceases employment with ABC Pty Ltd in May 2015. The grant of the shares is rescinded because the employee ceased employment within the two-year period. ABC Pty Ltd may reduce their taxable wages in the May 2015 payroll tax return by $2000.
Shares or options as fringe benefits
If a share or option granted is classified as a fringe benefit under the Fringe Benefits Tax Assessment Act 1986 (Cth), it is treated as such for payroll tax purposes.