You moved overseas. Your shares and options didn't.
If you left Australia with shares, options, RSUs or other employee share scheme interests, your Australian tax obligations may not have ended when you left the country.
For some Australian expats, the tax treatment of an Employee Share Scheme (ESS) can become significantly more complicated once tax residency changes.
The issue is particularly important where you still hold deferred ESS interests that have not yet reached their Australian taxing point.
The 15-year rule could be the date that changes everything.
But it isn't the only date you need to understand.
Agilis Exec Tax helps Australian executives and professionals understand the tax treatment of ESS interests before, during and after an overseas move.
Your ESS doesn't necessarily stop being an Australian tax issue when you leave
Employee Share Schemes can include:
Under Australia's Division 83A rules, certain ESS interests can receive tax-deferred treatment.
Instead of taxing the discount when you receive the interest, tax may be deferred until a later ESS deferred taxing point.
Depending on the type of ESS interest and the terms of the scheme, that taxing point can arise when restrictions fall away, when certain conditions are satisfied, or ultimately 15 years after you acquired the interest.
That creates a problem for Australians who leave the country while holding ESS interests.
You may have moved overseas.
Your employer may be overseas.
You may be paying tax in another country.
But Australia may still have an interest in how your ESS is taxed.
Imagine this.
You work for an Australian or multinational company. You receive $500,000 of shares or options under an ESS. The scheme is structured so that the ESS discount is taxed at a later date.
A few years later, you move permanently to Singapore, the UK, the US or another country. You become a foreign resident for Australian tax purposes.
Your ESS interests are still sitting in your brokerage or employee share plan account. Nothing has been sold.
"I'm no longer an Australian tax resident, so Australia can't tax me on this."
That's where things can become complicated.
Australia has specific rules for people who cease Australian tax residency, including CGT event I1.
When an individual ceases Australian tax residency, CGT event I1 can generally apply to CGT assets that are not taxable Australian property, with the individual treated as having disposed of those assets at market value.
There is also an election available to disregard the capital gain or loss at the time of departure, with the assets instead treated as taxable Australian property until a later CGT event or the person becomes an Australian resident again.
For ESS interests, however, the interaction with Division 83A and the particular circumstances of the scheme needs to be examined carefully.
That's why an ESS holding should be reviewed as part of your Australian departure planning — not after the fact.
There isn't necessarily one tax event. There can be several.
The ESS acquisition
You receive shares, options, rights or another ESS interest.
The difference between what the interest is worth and what you paid can potentially represent an ESS discount.
Depending on the scheme and whether the relevant Division 83A conditions are met, the discount may be taxed upfront or deferred.
The deferred taxing point
For qualifying tax-deferred ESS interests, the taxing point generally occurs at the earliest relevant time under the ESS rules.
The maximum deferral period is generally 15 years from acquisition.
Importantly, since 1 July 2022, ceasing employment is no longer itself a deferred taxing point for these interests.
That means simply leaving your employer doesn't necessarily trigger the ESS tax. But it also doesn't mean the tax disappears.
You leave Australia
Your Australian tax residency changes. This can introduce a separate CGT consideration.
For an individual who ceases Australian residency, CGT event I1 can apply to CGT assets that are not taxable Australian property.
You may have the option to defer the CGT consequence by choosing to disregard the gain or loss at departure.
You become a tax resident somewhere else
Your new country may have its own rules for:
- Employee share plans
- Stock options
- RSUs
- Share disposals
- Employment income
- Capital gains
- Foreign-source income
You can therefore end up with two countries looking at the same ESS interest from different tax perspectives.
The ESS eventually vests, is exercised or is sold
The eventual transaction may involve both:
- The ESS discount being taxed under Division 83A; and
- A subsequent capital gain or loss under the CGT rules.
Once the ESS discount has been brought to tax under the ESS rules, subsequent gains or losses can generally fall under the CGT regime.
The 15-year rule is easy to misunderstand.
It doesn't mean:
"You can wait 15 years before paying tax."
It means that for certain tax-deferred ESS interests, the ESS taxing point cannot generally be deferred beyond 15 years from acquisition.
The actual taxing point may occur much earlier.
For example, depending on the ESS structure, a taxing point may arise when:
- There is no longer a real risk of forfeiture;
- Genuine restrictions on disposal are lifted;
- A right is exercised and the resulting share is no longer subject to relevant restrictions; or
- The 15-year maximum deferral period expires.
The rules differ between shares and rights, so the actual plan documents matter.
The 15-year date should therefore be treated as a planning deadline — not a tax-free waiting period.
This is where specialist advice becomes important.
Your position can depend on:
This is why an ESS statement alone isn't enough.
You need to understand the history of the interest.
An ESS discount is not necessarily treated as entirely Australian or entirely foreign.
The tax treatment can depend on where the employment services connected with the ESS interest were performed.
The ATO specifically recognises that where employment connected with an ESS interest is performed partly outside Australia, only the relevant portion may be subject to Australian ESS taxation in certain circumstances.
That makes your employment history important. For example:
The answer may not simply be:
"Tax it all in Australia."
The period and location of the employment services associated with the ESS interest may need to be examined.
Moving overseas does not automatically make you a foreign resident for Australian tax purposes.
Tax residency is determined under Australian tax law and depends on your individual circumstances.
The ATO considers factors including your circumstances, connections to Australia, family and living arrangements, and the nature and duration of your overseas stay.
Once you become a foreign resident, Australia's tax treatment of your income and capital gains changes.
Australian residents are generally taxed on worldwide income.
Foreign residents generally have Australian tax obligations in relation to Australian-source income and taxable Australian property rather than their worldwide income.
That distinction becomes particularly important when your ESS is sitting between two countries.
This is one of the areas we look at as part of an expat ESS review.
When you cease Australian tax residency, CGT event I1 can apply to CGT assets that are not taxable Australian property.
Broadly, this can mean you are treated as having disposed of those assets at their market value when you cease residency.
There is an important choice available to individuals. You can choose to disregard the capital gain or loss arising from CGT event I1.
If you make that choice, the relevant assets are generally treated as taxable Australian property until the earlier of a later CGT event or you becoming an Australian resident again.
Choosing whether to crystallise or defer the CGT consequence can have significant financial implications. It should not be treated as an automatic box-ticking exercise.
This is another area that needs to be reviewed before the taxing point.
For example, your new country may tax:
- The ESS discount;
- Vesting;
- Exercise of an option;
- Disposal of shares; or
- A combination of these.
Australia may also have taxing rights over some or all of the ESS benefit.
Where foreign tax has been paid, an Australian foreign income tax offset (FITO) may be relevant in appropriate circumstances.
Australia also has tax treaties with many countries, which can affect taxing rights and the treatment of income between jurisdictions.
The important point is:
Foreign tax paid does not automatically mean Australian tax is no longer payable.
The interaction needs to be calculated.
A common problem with deferred ESS is that the tax can become payable based on the value of the interest at the relevant taxing point.
You may have a substantial ESS holding without having received cash. For example:
Potential ESS discount: $700,000
If the relevant ESS taxing point occurs, that doesn't necessarily mean you receive $700,000 in cash. But the tax consequences may still need to be dealt with.
That's one reason ESS planning matters. You need to know where the cash to fund the tax is going to come from.
At Agilis Exec Tax, we can review the full picture rather than looking at the ESS in isolation.
ESS structure
We review:
- Shares
- Options
- RSUs
- Rights
- Restricted shares
- Start-up ESS concessions
- Taxed-upfront schemes
- Tax-deferred schemes
- Vesting conditions
- Disposal restrictions
- Exercise conditions
Your employment history
We establish:
- Employer
- Grant dates
- Employment dates
- Australian service
- Overseas service
- Changes in role
- Transfers between countries
- Employer changes
- Relevant employment conditions
Australian residency
We review:
- Date you became an Australian tax resident
- Date you ceased Australian tax residency
- Whether residency actually ceased
- Relevant CGT implications
- CGT event I1
- Any election to disregard the departure gain or loss
Overseas tax position
We consider:
- Your new country of residence
- Local ESS taxation
- Employment income rules
- Capital gains treatment
- Foreign tax paid
- Potential foreign income tax offsets
- Relevant tax treaty considerations
Future planning
We can help you understand:
- Your upcoming ESS taxing points
- Potential tax exposure
- Disposal timing
- Exercise decisions
- Residency implications
- Record-keeping requirements
- Cash-flow requirements for future tax liabilities
The biggest mistake is assuming the issue can be dealt with when you eventually sell.
It may need to be dealt with much earlier.
Your ESS may have:
- A grant date
- A vesting date
- An exercise date
- A deferred taxing point
- A residency change
- A CGT event
- A foreign tax event
- A disposal date
And those dates can occur in different countries.
The earlier we map them, the more options you may have.
If you have moved overseas and still hold Australian or multinational employee shares, options, RSUs or other ESS interests, we'll help you understand what the Australian tax rules mean for you.
We'll map your:
ESS → Employment history → Tax residency → Australian tax → Overseas tax → Future taxing points
So you know where you stand before the next tax event occurs.
A practical review for Australians who have moved overseas with employee shares or options.
We'll need information such as:
We'll use this information to identify the key Australian tax issues and the decisions that may need to be made.
Australian expat + ESS?
The question isn't simply:
"When can I sell?"
It's:
"What happens to my ESS when my Australian tax residency, employment and the ESS taxing point all occur at different times?"
Get the position mapped before the next tax event.