Australia Seeks To End Double Taxation Of Employee Stock Options

by Mary Swire, Tax-News.com, Hong Kong

01 April 2005

Australia’s federal government is planning to adopt new OECD guidelines, preventing the double taxation of stock options in employee share plans for workers employed overseas.

According to a report in Australian newspaper The Age, a proposed bill will split the taxable return from employee stock plans proportionally between the two countries, depending on how long the shares are held in each country.

Last September, the OECD issued a series of recommendations designed to achieve a common interpretation of how tax treaties apply with respect to employees or directors who receive stock-options as part of their remuneration.

The Organisation has now put these recommendations, along with a series of other proposed changes to the model double tax agreement convention, to a period of consultation lasting until the end of the month.

Explaining to The Age how Australia’s new rules will work, KPMG tax partner Martin Morrow observed: "These rules are seeking to say 'no, we will not treat that as a capital asset but as income from an employee share scheme', which means it will only be taxed in proportion to the person's service in Australia if it relates to that service in Australia (in the case where performance hurdles must be met)."

It is reported that around one million of Australia’s nine million employees are currently working overseas.

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