Payroll tax applies to shares and options granted by an employer to employees or deemed employees.
You must declare shares and options in your payroll tax return if they:
- have been granted to employees or deemed employees, including contractors and company directors or governing body members (past or present)
- are an employee share scheme interest (as defined in the Income Tax Assessment Act 1997 (Cth)) granted under an employee share scheme.
A share or option is granted to a person if:
- in the case of a share, another person allots the share to them
- in the case of an option, another person confers the option on or creates the option in them
- they otherwise acquire a legal or beneficial interest in the share or option from another person.
Payroll tax applies to them value of the shares or options on the relevant day.
The value of a share or option is the market value (or other amount determined under the Income Tax Assessment Act 1997 (Cth) or Income Tax Assessment Regulations 1997 (Cth)), minus anything the employee paid for the grant.
The relevant day is either:
- the date the share or option is granted to the employee, or
- the vesting date.
If an employer does not report the value of a share or option in the payroll tax return for the year it was granted, they are deemed to have elected the vesting date as the relevant day.
Vesting date
For a share, the vesting date is the earlier of:
- the date when all conditions related to the granting of the share is met and the legal or beneficial interest in the share cannot be rescinded
- 7 years after the share was granted.
For an option, the vesting date is the earliest of:
- the date when the share to which the option relates is granted to the employee
- the date when the employee exercises the option to have the share transferred, allotted or vested
- 7 years after the option was granted.
Start-ups
Start-up companies can use the Commonwealth ‘safe harbour’ valuation methods to value unlisted shares for payroll tax purposes.
Employees can reduce the value of the employee share scheme interests to zero for income tax purposes if the relevant employer qualifies for the start-up concession. However, employers cannot automatically apply a zero value for payroll tax purposes. They must use one of the safe harbour methods to reach the valuation (which can be zero).
There are 2 safe harbour valuation methods:
- Net tangible assets method: value is based on the company’s total tangible assets minus liabilities.
- Comprehensive valuation method: value is determined by a qualified expert using a formal market-based valuation.
If a start-up company chooses an alternative method resulting in a higher market value, we accept that value for payroll tax purposes.
Withdrawing shares or options
If the grant of a share or option is withdrawn, cancelled or exchanged before the vesting date for consideration other than shares or options:
- the date on which that occurs is deemed to be the vesting date
- the taxable amount is the value of the consideration.
Forfeited or lapsed shares or options
If shares and options are forfeited or lapse before the 7-year vesting date, the value is regarded as nil.
Rescinding the grant of a share or option
If a grant is rescinded because the vesting conditions were not met, but an employer already declared the value in their payroll tax return based on the grant date, the employer can deduct that value from their taxable wages in their payroll tax return for the relevant financial year.
This reduction does not apply when the employee decided not to exercise the option.
Example
ABC Pty Ltd granted shares to an employee in May 2024. The market value at the grant date was $2,000 and the employee did not pay any consideration. The grant was conditional on the employee staying with ABC Pty Ltd for 2 more years.
ABC Pty Ltd declared $2,000 of taxable wages in their May 2024 payroll tax return. The employee left in May 2025 and the grant was rescinded because of the employee did not meet the 2-year condition.
ABC Pty Ltd could reduce their taxable wages in the May 2025 payroll tax return by $2,000.
Shares or options as fringe benefits
Shares or options granted outside an employee share scheme are taxable as a fringe benefit under Division 2, Part 2 of the Payroll Tax Act 2007.
Detailed information
- Wages for payroll tax purposes: Payroll Tax Act 2007
- Employee share schemes: section 83A-10 of the Income Tax Assessment Act 1997 (Cth)
- Value of shares or options: sections 83A-315 of the Income Tax Assessment Act 1997 (Cth) and division 83A of the Income Tax Assessment Regulations 1997 (Cth)
