For high earning executives who are returning from an overseas posting, your treatment of tax including foreign tax obligations is indelibly tethered to your personal prosperity.
Understanding how tax is applied in Australia as well as the foreign tax jurisdictions in which you have worked, and the timing of key actions, is crucial for avoiding penalties and payment of more tax than necessary. But make no mistake, this is NOT a tax article. It’s all about financial planning and in particular making the most of your Executive Share Scheme (ESS).
Such is the complexity of tax in your financial affairs, you will need advice. By that, I mean you’ll need collaborated advice offered by a number of specialised professionals specific to your circumstances.
Due to legal licensing arrangements financial planners are not allowed to advise on tax matters and vice versa. In our experience this is a benefit, as two (or three) collaborating heads are better than one for achieving great personal prosperity outcomes.
Executives who have spent a period of time living and working overseas need to understand THREE key matters PRIOR to returning home to Australia. They are:
i) their foreign tax commitment with the countries in which they have worked
ii) their tax residency, and
iii) their ESS commitments prior to returning home to Australia.
Tax, your ESS and personal prosperity
If you’ve participated in an ESS while overseas, understanding any Australian and foreign tax implications for future vestings of vested shares is important.
This will include knowing, whether withholding tax has or will be applied automatically to your ESS, and also what the tax commitments are across the various jurisdictions.
Being aware in advance of the amount of tax payable, where you need to pay tax, how you’ll fund that tax obligation and when you’ll pay it are planning considerations that impact directly on personal cash flow and your asset position. For example, you may be in a position to fund your tax bill from savings or you may need to sell a parcel of shares to meet your tax obligation. For most ESS related tax matters, timing and domicile history is a crucial factor.
Clarify your tax residency
Matters of tax residency are rarely straightforward, affecting your tax obligations in Australia, and depending on your work location circumstances, multiple foreign tax jurisdictions.
It’s important to be aware, that foreign tax returns for different periods of time, particularly where assets (including ESS) were granted or acquired while outside of Australia, may need to be completed.
As a tax paying resident of Australia or a foreign tax jurisdiction, there will be implications on your tax position including the amount of tax you will be required to pay here in Australia and/or to overseas tax authorities. You will need advice to determine which tax jurisdictions are applicable to you in consideration of when you ceased being a foreign tax resident and when you resumed your Australian tax resident status.
It is important to know that tax residencies are not mutually exclusive. Depending on your circumstances, you can be a tax resident of multiple jurisdictions and therefore have tax obligations that need to be fulfilled for each of them.
Meet your foreign tax issues
Understanding the issues and tax on your income and assets will mean that you meet your legal obligation rather than facing penalties or paying more tax than is necessary. This will include the foreign tax implications of your financial transactions, assets and income that have been captured and treated under each country’s tax legislation. It is important to know there could be foreign tax implications on Australian owned assets in overseas jurisdictions.
As indicated earlier, planning how and when tax will be paid are financial planning issues affecting your personal cash flow. Working with specialist accountants who provide strategic tax advice for avoiding paying more tax than is necessary, and allowing your assets and ESS to continue to accumulate in value and compound over time, adds to your personal prosperity.
There is a lot to consider, but the key take out is simply this: ignore your foreign tax obligations at your peril.
Unresolved issues have a habit of catching up with you even after you’ve returned to Australia, and often with complex, time consuming and expensive consequences.
To summarise:
- Tax, both foreign and Australian, are directly linked to your tax residencies and should be considered PRIOR to returning to Australia
- Your ESS and any assets accumulated in Australia or as a result of working overseas
- ESS vesting is particularly sensitive to timing and residency, and tax compliance actions need to be understood for achieving tax efficiencies so you pay no more tax than your legal obligation.
I invite you to contact Executive Strategies for a discussion about your circumstances and for developing a plan for dealing with these matters. This will do much for alleviating the time stress so often associated with navigating the inherent complexity of ESS and its ATO and foreign tax implications, and providing the peace of mind that comes with knowing you have the support of experienced, collaborating advisers working together in your best interests.
For more information, please contact James Marshall, Financial Adviser and ESS Strategist +61 (0) 7 3007 2080 or email contact@executivestrategies.com.au.
*Please note: As advice and services relating to tax matters as discussed here, are not offered under the Fortnum Private Wealth AFSL, in accordance with our collaborative advice model, when required such matters are referred to appropriately qualified professionals.
Executive Strategies is a specialised information hub for executives and senior managers, those have founded their own business or who work for growing private, ASX listed companies or government businesses. Its purpose is to provide access to specialist advisers and information that address the often-complex issues affecting personal prosperity.
Stratus Financial Group and its advisers are Authorised Representatives of Fortnum Private Wealth ABN 54 139 889 535 AFSL 357306. This information does not consider your personal circumstances and is of a general nature only. You should not act on it without first obtaining professional financial advice specific to your circumstances.
