If you work at a technology company that offers RSUs (Restricted Stock Units) or other employee equity, the tax consequences can be significant — and can create a situation where you owe tax on income you have never actually received in cash. Here is what you need to understand.
How RSUs Are Taxed in Australia
When RSUs vest — the moment they become your unconditional property — the ATO treats the market value of those shares on that date as ordinary income. This means:
- You are taxed on the vest-date value as employment income, at your marginal tax rate
- This applies even if you do not sell a single share
- The taxable amount is included in your tax return for the year the shares vested
- Your employer should report this on your income statement — but always verify it is included correctly
The Stock Price Drop Scenario
This is where RSU taxation becomes genuinely painful. Consider this example:
When Holding Creates a Cash Loss
You receive 1,000 RSUs that vest when the share price is $100. Taxable income: $100,000.
At a 47% marginal rate, tax owed: approximately $47,000.
You decide to hold the shares rather than sell them.
Over the next year, the share price falls 70%. Your shares are now worth $30,000.
Result: You paid $47,000 in tax on income that is now worth $30,000 — a net position of -$17,000.
The subsequent $70,000 fall in share value is a Capital Loss — but capital losses cannot offset employment income. They can only offset future capital gains.
Strategies to Manage RSU Tax Risk
Managing RSU Tax Risk
Sell to Cover: On vest date, sell enough shares to cover the estimated tax liability. This ensures you have the cash to pay what is owed without being exposed to further price risk on the portion you will need to liquidate for tax.
30-Day Rule (Section 83A): In some circumstances, you may be able to elect to defer the tax point or restructure the timing of when income is recognised. This is complex and very situation-specific — get advice before vest date, not after.
Tax Withholding Review: Confirm with your employer that they are correctly withholding tax from your RSU vest. Some international payroll systems do not handle Australian RSU taxation correctly.
What Happens When You Eventually Sell
When you sell shares that were acquired through RSU vesting, you trigger a CGT event. The cost base of those shares is their market value at vest date (the amount you already paid income tax on). Any gain or loss above that amount is subject to CGT, with the 50% discount potentially available if held for more than 12 months from vest date.
If you are in a tech company with a significant RSU component to your compensation, a pre-vest review with a registered tax agent can identify your tax liability before it becomes a cash flow emergency.
General information only
This article provides general tax information only and does not constitute personal tax, legal, or financial advice. Tax rules can change and individual circumstances vary.
If you would like advice based on your situation, please get in touch with the practice.
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