Why do People Have To Pay Tax on Share Options Even Though They Haven’t Sold Them Yet?

When it comes to finance and investments, shares hold one of the most significant controversies and misconceptions you can ever find. These misconceptions have fueled fear and have discouraged people from investing in shares. People have wondered if they would pay tax on share options, especially when they haven’t sold them yet. Taxes are practically one of the certain subjects in life. You simply cannot do without them!

Interestingly, shares are not free from this phenomenon. However, these should never stop you from investing. This article will answer these questions and clarify the misconceptions surrounding share tax payment.

Must You Pay Taxes On Shares You Have Not Sold?

Knowing how the new Australian tax rules for share options work is essential before investing in shares. However, people usually pay taxes on two major types of shares: income tax and capital gain tax (CGT).

Income Tax

Income tax is paid for the dividends you receive. Income taxes are associated with other incomes you generate or make and is useful when you want to complete your tax return. Therefore, if your company does not pay dividends, you do not have to pay an income tax.

Also, if franking credits accompany your dividends, those credits can be used to lower your taxable income or receive a cash refund when you don’t need to make a tax payment. Therefore, for personal income taxes, you do not need to sell your shares before a tax payment is made; as long as you receive dividends, income tax on your share options must be made.

Capital Gain Tax (CGT)

Capital Gain Tax is another option where tax is payable; only this time, tax payments are made when the shares are actually sold. For example, if you bought a share option worth $1000 at $10 per share. If the share appreciates to $10000, you will likely have each share at $100. Despite the profit of 1000%, you would not pay the capital Gain Tax, except if you sell your share option.

Hence, your share sales will trigger a tax bill that must be paid. Therefore, when shares are sold, and profits are made, a capital Gain Tax must be paid on the profit generated. So, the capital gain tax is added to your income tax, which is usually estimated annually. In the event you sell your shares at a loss, you can roll over the loss and deduct it from your net profit.

Aside from this, Australia’s current tax laws offer investors an advantage that helps lower taxes like never before. If you hold your share option for 12 months or more, then you are entitled to a 50% discount on profit made on all capital Gain Taxes.

Tax payment is an inevitable phenomenon that all must pay. Therefore, you must not be discouraged from investments because of the tax on share options. The taxes on share options are often agreed upon. However, you must contact a licensed tax expert to give you professional advice.


Shares are not free from misconceptions and controversies. However, these should never stop you from investing. With the right knowledge and understanding of how shares work, you can be well on your way to financial success. Do you have any questions about shares or taxes? Let us know in the comments below!

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