Written by: Tristan Perry, Head of Tax, Australia at Select Investors Australia. Tristan is an Australian Tax Agent and expatriate tax advisor based in Singapore.
Employee shares and options are a great way to renumerate employees whether you are an employer or employee. These are very popular in Singapore however do come with some tax considerations, especially when repatriation to Australia is concerned. Below is some general commentary on how these are taxed including a few planning considerations for those who may be taking them back to Australia. Do note that this is general advice and please do reach out if you would like to discuss your specific circumstances.
Restricted Employee Share Options (ESOP)
An option is a right, but not an obligation, to acquire a share in a company at a point in time for an agreed price (regardless of the actual market value). These can provide a “discount” to the holder of the option to acquire a share in the company and the “bonus” is the upside between the actual market price, and the price which the employee must pay to exercise (or convert) them into shares (which can be Nil or an amount higher than this). An employer will usually impose a “vesting” period where the employee must hold the options for several years before they are able to exercise them, which acts as the incentive to continue to work at the company and improve the share price. An option also does not have to be exercised and can expire and become worthless. An example of this is when the market price of the company is less than the exercise price.
Singapore will tax the options upon exercise, and the taxable income will be the “discount” or the benefit which is received at the time. If an employee who is a non-citizen of Singapore holds unvested options which they will take to Australia, they will be taxed at the market value upon exit of Singapore. Australia will then tax the options upon exercise based on the vesting period apportioned to the time in Australia, and if they are already vested however not exercised, they will be taxed under the capital gains tax regime from the market value at change of residency, to the actual market value when exercised. If they are never exercised in Australia and end up being forfeited, the employee can write to IRAS to request a refund of the tax already paid on them at exit of Singapore.
Restricted Stock Units (RSU)
A restricted stock unit is a company share which is given to an employee as salary in disguise or a bonus and is restricted from being sold until the vesting period is complete – as an incentive for the employee to maintain their employment and work hard to help build up the value of the company. Once the vesting period is complete, the employee can either continue to hold the share or choose to sell it. In Singapore, the taxing point is when the shares vest, and the taxable income is generally the market value of the shares at the time of the vest, assuming the employee has not paid anything for them. In the situation when the employee takes RSU’s to Australia, Singapore will tax based on the market value upon exit, then Australia will tax on the proportion of the vesting period which relates to services performed in Australia at the employees’ marginal rates at the time. If the employee forfeits the shares in Australia, they can write back to IRAS to ask for a refund of the tax paid on the shares at exit. Once the shares have vested, and they are brought into Australia, they are taxed as a capital asset under the capital gains tax provisions, and can benefit from the 50% CGT discount, and restructuring options (such as into a family trust, Superannuation fund and offshore bond structure).
Planning Considerations
As you can see above, the taxation of shares and options are complex however largely based on apportionment between the two countries. Whilst the options and shares are unvested, there is more than likely no option to restructure these until they vest.
Once this has happened, restructuring considerations such as continuing to hold OR selling down to cash, and contribution the cash to a more tax efficient environment like an Offshore Bond, Family Trust or Superannuation fund can be considered.
Contact Tristan Perry, Head of Tax, Select Investors Australia for an obligation free discussion about your specific circumstances via email Tristan.perry@selectinvestorsaustralia.sg or phone +65 91086398.
The above information is general in nature and could vary depending on your personal circumstances. The levels and bases of taxation, and relief from taxation, can change at any time. The value of any tax relief depends on individual circumstances.