Being close neighbours sharing many similar market characteristics, sees companies either side of the Tasman Sea operating in both geographies with executives  swapping domiciles as needed. Larger companies tend to consider their executives as from one homogenous talent pool, and pay accordingly. Yet, while there are similarities between the taxation legislations in Australia and New Zealand, it is important to remember that they are different countries with different legislative frameworks. This has ramifications for equity plan design and the rules underlying these plans.

In Australia, the taxation legislation was amended with effect from 1 July 2015 to extend the maximum period for which tax can be deferred to 15 years from grant of the equity. This means that Australian resident executives can defer paying tax on share rights until they actually exercise the rights.

In New Zealand, the taxation point for shares and related rights under an employee share scheme is when the employee has beneficial ownership.

New Zealand Tax Counsel Office (TCO) Decision

In April 2024 the TCO determined that the taxing point of rights granted over shares under an employee share scheme was at vesting rather than exercise.

In this case, the rights to shares vested 3 years after grant, and provided that the employee remained employed, they had another 2 years in which to exercise the rights. The share rights vested in June 2020 and June 2021 and were exercised by the employee in April 2022.

The TCO determined that the taxation point was at vesting because it was from that point the company held the shares for the benefit of the employee and there was no material risk that beneficial ownership would change.

What about options?

The share rights were rights to receive shares for no consideration, and were not options. So the taxpayer did not have to pay anything for the shares. As options give the right to buy shares, there is no beneficial ownership until the holder exercises the option and pays the exercise price.

The TCO decision states that the rights were not “straightforward employee share options” where the “share scheme taxing date” would be the date the options are exercised.

This means that for “straightforward” share options, taxation is at exercise rather than at vesting.

See the TCO case HERE.

Consider mobility

Good plan design, offer documentation and administration should be able to handle trans-Tasman relocations to ensure the tax differences are effectively managed for the employee. But if in doubt, check it out.

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