Multi-jurisdictional taxation, tax equalisation and vesting are highly complex ESS considerations that require specialist advice so you may avoid unpleasant – and potentially significant – financial surprises come tax time. It is important to understand the consequences of a poorly managed ESS and, crucially, to realise that you’ll need a financial professional with specialist experience in this area.
As an executive, you require specific outcomes when it comes to managing your ESS. These include having a clear understanding of your tax obligations across multiple tax jurisdictions (particularly with respect to your tax residency status and vesting periods); knowledge for informed decision making when your shares vest; and in a tax equalisation situation, assurance that actual or hypothetical withholding tax is appropriately considered so you avoid paying more tax than required and receive all financial benefits you are entitled to.
For executives with an ESS and who are on temporary international assignment in one or more countries, have relocated permanently or are expatriates, here are THREE important matters you’ll need to consider:
#1 Multiple tax jurisdictions
Having an ESS and then relocating overseas to work may subject you to multiple tax jurisdictions, including the tax rules specific to various countries. Understanding all the tax implications is key to making informed decisions and ensuring you meet all applicable tax obligations. The key is only paying what is required and, of course, avoiding paying what can be significantly more tax than necessary.
The tax processes in overseas jurisdictions are difficult and complicated, not only for executives, but for many financial professionals who are unfamiliar with the myriad of issues involved. It is easy to lose track of the tax obligations for each country and the provisions of any ESS hypothetical withholding by your employer. In my experience, it’s common for many generalist accountants to be unaware of problems or not have the information available to understand and resolve them.
#2 Tax equalisation
Some organisations have a tax equalisation policy involving hypothetical tax rates applicable in your home country whilst working overseas. Tax equalisation adds further complexity to the management of your ESS when you are subject to multiple tax jurisdictions.
If this is the case, you would need to ensure the actual or hypothetical withholding tax is credited back to you and applied correctly to your executive share scheme. This needs to be carefully tracked and managed as hypothetical tax withholding can be significant.
Many executives simply do not have the time or resources necessary to track this appropriately given the demands of a senior leadership career. We understand and have experience managing hypothetical tax equalisation withholding policies that may apply to an ESS. This insight allows us to identify potential issues with tax equalisation withholdings in advance, issues which could, if not addressed, result in you not receiving the full value of your shares or cash. In recent years we have reviewed and recovered an average of $70,000 for three clients with an ESS subject to tax equalisation where errors were made.
Vesting is also highly complex and requires specialist advice if you are to make the most of the opportunity it offers.
For example, an executive may have been granted an award of company shares (with a three-year vesting period) while a tax resident of Australia and then moved overseas halfway through the vesting period. The executive needs to understand that even if their Australian tax residency ceased upon their leaving Australia, there may still be tax obligations in Australia (as well as in their new tax jurisdiction) which would need to be considered when the shares vest.
Your next step…
Seek specialist experience and qualified advice.
A tax accountant who has not received all the historical data required to properly consider the withholding tax you have paid, particularly if it was hypothetical, will be unable to help you. This may lead to a significant tax bill or, if the amount of hypothetical withholding is incorrectly applied, you may not receive the refund or credit you are due.
At Stratus Financial Group, we have worked with mining and resource company executive share schemes for the last 20 years. We have perspective and direct experience that specialises in project managing your ESS, underpinned by an approach that works in your best interests at all times and strives to make the most of benefit available to you.
Our role entails collaborating with your tax professionals in Australia and overseas or, as circumstances dictate, we can introduce you to Australian and international tax experts from our trusted professional network. Our goal is to deliver the advice you need to understand your tax liabilities and when those liabilities are due, your tax impacts and the after-tax value of your ESS, to enable you to make informed decisions.
To discuss your ESS needs and our specialised ESS advice and services, please contact Brett Cribb or James Marshall on +61 (0)7 3007 2007 or emailing firstname.lastname@example.org
Stratus Financial Group contributes financial planning advice to Resources Unearthed, a solutions hub that connects executives, professionals and business owners in mining and resources with highly qualified, specialist advisers in financial planning, insurance, accounting & business advice, legal support, specialist tax advice, and finance & lending support.
The information contained in this blog post is of a general nature and not intended to serve as advice. Any information supplied is not a substitute for independent professional advice.
Stratus Financial Group helps families, professionals, executives, business owners and retirees manage their complex financial affairs and coordinate their professional advisers.