Employee share acquisitions: Payroll Tax Employer Guide

The grant of a share or option becomes liable for payroll tax on the relevant day. In most circumstances, you may choose the relevant day as either:

• the date that the share or option is granted to the employee or
• the vesting date of the share or option.

When is a share or option granted?

A share or option is granted to an employee if:

• another person transfers the share or option to that employee (in the case of a share, other than by issuing the share to that employee)
• another person allots the share to that employee
• another person confers the option on, or otherwise creates the option in, that employee
• the employee otherwise acquires a legal interest in the share or option from another person or
• the employee acquires a beneficial interest in the share or option from another person.

To avoid doubt, if you:

• provide an employee the right to be granted a share, option or some other material benefit and
• have the discretion to choose when to grant them,

these are deemed not to be granted until you make that choice.

When is the vesting date of a share or option?

The vesting date depends on whether the contribution is a share or an option.

For a share, the vesting date occurs at the earlier of two events:

• when any conditions (e.g. performance criteria) attached to the grant of the share have been met and the employee’s legal or beneficial right in the share cannot be rescinded or
• seven years after the day the share is granted to the employee.

For an option, the vesting date occurs at the earliest of three events:

• the day the share that the option relates to is granted to the employee
• the day the employee exercises his/her right under the option to have the relevant share transferred, allotted or vested or
• seven years after the day the option is granted to the employee.

Failure to declare

If you have not included the grant of shares or options in your payroll tax return during the assessment year in which they were granted, the grant will be taken to have been paid or payable on the vesting date of the share or option (section 9DC(1) PTA Act).

Nil taxable value at grant date

If you grant a share or option to an employee, and:

• the share or option has nil value or
• the share or option would not have been liable for payroll tax if the employer had chosen to treat the grant date as the relevant day,

the grant is deemed to have been paid or payable on the grant day of the share or option (section 9DC(2) PTA Act).

If you have chosen the grant date as the relevant day and paid payroll tax on the taxable value of the share or option, you may seek a credit against the tax paid if the grant is subsequently rescinded because a condition attached to the grant (e.g. performance criteria) has not been met. However, this does not apply in situations where the employee simply decides not to exercise the option.

The taxable value of a share or option is the market value on the relevant day (Australian currency), minus any consideration that the employee has paid for the share or option (except any consideration made in the form of services provided).

The market value of the share or option is determined by the Commonwealth income tax provisions. Refer to Division 83A–315 of the Income Tax Assessment Act 1997 (Cth) and its associated regulations for more information.

Under section 9DG of the PTA Act, wages include the grant of shares or options to a director of a company as remuneration for his/her appointment or services to the company. Consequently, these are subject to payroll tax. This provision also refers to former directors of the company and prospective directors of the company.

If the director is appointed but no services have been carried out, the grant of the share or option is taken to be granted as though such services have been carried out, and at the place where the services could reasonably be expected to be carried out.

Section 5(1) of the PTA Act states that payroll tax is payable on WA taxable wages. WA taxable wages are detailed in sections 6A–6D, and mean wages for services carried out wholly in WA in a month, irrespective of where they are paid or payable. Where this does not apply, WA taxable wages means wages:

• paid or payable to a person who is based in WA
• paid by an employer that is based in WA or
• paid or payable in WA.

For more detailed information, see Revenue Ruling PTA 039 ‘Nexus Provisions’.

When it is necessary to consider whether wages are paid or payable in WA (see d) above), then where the share, or the underlying share where there is an option, is in a local company, the wages payable for the grant of the share or option are taken to be paid in WA.

Local company means a company that is registered in WA and is incorporated under the Corporations Act.

For example, if an employee performs all services in WA but the share or option made available by his employer (and therefore taken to have been paid) is not in a local company (i.e. the company is not registered in WA), the grant of the share or option will still be liable in WA. This is because all of the services are performed in WA, so all wages will be taxable in WA, irrespective of where the share or option is paid.