DT2659B - Particular agreements: Australia: Share Options

The Exchange of Notes to the new Agreement with Australia contains specific provision for the taxation of share options. But it follows existing practice.

Both countries agree that income or gains derived by employees from share option schemes should be treated as earnings within Article 14 "income from employment".

Unless the facts indicate otherwise, the period of employment to which the option relates is taken as the period between the grant and the date when all the conditions for exercise have been satisfied (the "vesting date").

Using the date of vesting rather than the date of actual exercise represented the current stage of international thinking when the Agreement was signed. For territories where no specific provision has been made, the general taxation position set out in Tax Bulletin 55 (DT 1925 et seq.) applies.

Where a resident of one territory makes such income or gains and:

(i) the period between grant and vesting is the period of employment to which the share option relates;
(ii) the employee remains in that employment when the option is actually exercised or otherwise alienated;
(iii) that employment has been exercised by the employee in the other territory for all or some of the period between grant and vesting;

then the proportion of the gain attributable to employment exercised in that other territory will be determined on a straight line time apportionment.

In other cases, consult Employment Income Technical