March 16, 2021

ESS: Advice beyond wealth generation – TAX impacts

ESS Beyond Wealth Generation Tax Impacts

Executive Share Scheme tax rules are complex, especially with respect to the timing of taxing points and the various amounts of tax incurred. Knowing in advance when taxes are due and how much tax is payable at each point, will enable Executive Share Scheme (ESS) participants to plan. This can be especially important if it is necessary to fund what can be significant tax liabilities from savings or other funding sources.

In this article, we ask the questions you need answered about the tax impacts that go beyond wealth generation opportunities for executives who have been invited, or expect to be invited, to participate in a company ESS.

Executives working for mining and resources companies are often invited to participate in one or more ESS, and for those experiencing ESS for the first time, it can be daunting. While there are opportunities for substantial wealth, there are also significant complexities that need to be considered and understood, particularly from a tax perspective.

The timing of taxing points and the amounts of tax incurred can be difficult to determine, depending on the ESS and a range of other influencing factors.

Tax wise, questions that need to be asked and answered include:

  • Is your ESS subject to start-up provisions?
  • Is it subject to ‘deferred’ tax provisions or is it taxed ‘upfront’?
  • What is the vesting period of your ESS?
  • What performance hurdles or other obligations have been built into the ESS?
  • Have you been seconded overseas, or expect to be, during the period of participating in the ESS?
  • Does your ESS have a ‘good-leaver’ provision that allows you to retain some or all of the rights or shares, should you leave the company?
  • Does the ESS have any ‘flowering’ or ‘uncertain’ rights?
  • Is the company a public listed company or is it private?
  • What is the share price trajectory of the company? Has it risen or fallen dramatically or is it expected to?
  • Have you paid tax upfront on options to purchase shares, but those shares are now ‘out-of-the-money’?
  • Is your ESS, or your remuneration package as a whole, subject to a tax equalisation policy (relevant to employees who have been seconded to multiple jurisdictions), and if so, how might this policy affect the amount of tax you have to pay?

These and other issues specific to ESS, just about guarantee difficulty in understanding the complex nature of your taxation exposure, and importantly, thwart your ability to plan payments for meeting future taxation liabilities.

Unfortunately, not being prepared sufficiently for upcoming ESS tax liabilities can leave you in a position where you may need to urgently source funds from your savings or prematurely dispose of assets in order to meet your tax liability.

Next steps
If this article has left you wondering about the answers to the questions raised, there is a good chance your tax position needs clarifying – in particular, this includes determining the amount of tax payable under your particular ESS, when it’s due and how you’re going to pay for it.

If you are living and working overseas, additional complexities relating to your tax residency status may also apply. This includes when your Australian and foreign residency starts and finishes, and how much tax is payable to each tax jurisdiction.

ESS is an important aspect of executive remuneration that can result in significant wealth. However, as indicated here, it requires active management and a clear understanding of the tax impacts. Failing to do so, can and does, result in executives paying considerably more tax than they might have planned for (often in the tens of thousands of dollars) and as a result, they may be forced to sacrifice other assets to fund tax liabilities.

All of this can dramatically affect your personal prosperity. In short, you will need advice.

For further information, please contact Craig Barry on +61 (0) 7 3007 2000 or mail

Resources Unearthed is a solutions hub that provides integrated financial, legal, property and accounting & business advisory services for executives, professionals and business owners in the mining and resources sectors.


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