this is a
complex intersection of Australian bankruptcy and tax law involving
employee share scheme (ESS) income (RSUs),
trustee powers, and
tax attribution.
Let’s go step by step, specifically in the context of
NSW, Australia, and
ATO and Bankruptcy Act 1966 rules.
🔹 1. Background: RSUs and when they are “income” under Australian tax law
Under the
Income Tax Assessment Act 1997 (ITAA 1997), Division 83A, RSUs (restricted stock units) are part of an
Employee Share Scheme (ESS).
Tax is normally triggered
when the RSUs vest — i.e., when you
legally acquire the shares, and any restrictions on disposal are lifted.
At vesting:
- The market value of the shares at vesting (minus any amount you paid) is treated as assessable income to the employee.
- This is ordinary income, not capital gains.
- When those shares are later sold, CGT applies only to the gain or loss relative to the vesting value.
🔹 2. What happens during bankruptcy
Under the
Bankruptcy Act 1966:
- All property that you own or become entitled to during the bankruptcy period vests in the trustee in bankruptcy (s.58, Bankruptcy Act).
- That includes shares, vested RSUs, and other assets.
- However, personal services income (such as salary, wages, bonuses, or ESS income from employment) does not vest in the trustee — it is instead subject to the income contribution regime (Div. 4B of the Act).
That’s a key point:
RSUs vesting are considered employment income, not “property” per se — even if the trustee controls the shares.
🔹 3. The tax treatment during bankruptcy
Here’s where it gets subtle.
If:
- The RSUs vested during your bankruptcy period, and
- They arose from your employment before bankruptcy, but
- You had no control or access because the trustee froze the account —
Then, from the
ATO’s perspective, the
taxable event (vesting) still occurred
to you personally, because
you were the employee, not the trustee.
This means:
✅
You remain the taxpayer for any ESS assessable income at vesting.
🚫 The
trustee is not liable for income tax on that vesting (they are not the “employee” and don’t derive that income).
The trustee may, however, need to
retain or set aside funds to meet your
tax liability arising from that vesting — since they control the asset proceeds.
So:
- The vesting creates assessable income for you personally.
- The trustee is not taxed, but may need to account for your tax as part of their administration of the estate.
🔹 4. What if you never received or benefited from the shares?
That’s relevant.
If:
- The trustee controlled the shares and proceeds, and
- You received no personal benefit, and
- You were bankrupt when the income event occurred,
Then practically, the ATO still
assesses you, but any tax liability is a
provable debt in the bankruptcy — meaning it is the
trustee’s responsibility to deal with it from the estate (not yours personally after discharge).
So you personally wouldn’t owe tax after annulment/discharge for that period, as long as:
- The trustee correctly includes any ATO-assessed tax debt in the administration, and
- The bankruptcy covers that period of income.
🔹 5. Capital gains (for completeness)
When the trustee later
sells the RSUs,
CGT is payable by the trustee (as the legal owner at that time).
The CGT base cost would be the
market value at vesting (since that was taxed as income then).
So:
- Income tax (on vesting): Your liability (employment income event).
- Capital gains tax (on sale): Trustee’s liability (as legal owner).
🔹 6. In summary
| Tax Event | Who is Taxed | Why | Notes |
|---|
| RSUs vest during bankruptcy | You (the bankrupt) | It’s ESS income to the employee | Trustee not liable, but may set aside funds |
| Sale of RSUs by trustee | Trustee | They are the legal owner at sale | CGT applies to trustee |
| After bankruptcy annulment | No new liability | If all occurred during bankruptcy and no benefit to you | ATO debt is provable in bankruptcy |
