Comments on: Reader Question on Restricted Stock Units

By: New withholding taxes on stock option benefits | Canadian Capitalist

New withholding taxes on stock option benefits | Canadian Capitalist — Thu, 24 Feb 2011 03:05:44 +0000

[...] you receive employee stock options (ESOP) or restricted stock units (RSU) at work or participate in the Employee Stock Purchase Plan (ESPP) offered by your employer, you [...]

By: Pep

Pep — Thu, 12 Feb 2009 00:53:17 +0000

The other advantage of options versus RSUs is that with options you can defer the taxable benefit until the shares are sold (http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/rprtng-ncm/lns101-170/101/scrty-eng.html).

It’s not clear if the same holds for RSUs. Does anyone know?

In my case, this would be especially useful if this were indeed the case. I have to pay taxes on RSUs that vested in 2008, and for which the FMV at vesting is twice as much as it is today. If I can’t defer, then it becomes a case of having to pay taxes on a paper benefit using money that I don’t have, even if I sell the shares.

By: Bryce

Bryce — Tue, 01 Jan 2008 04:02:17 +0000

Also, if you make charitable donations look at donating some of the proceeds of your stock option gains to charity and you will not only get the charitable deduction but you will also not have to pay the tax on the portion donated. Kind of a double benefit. Much better then donating with after tax dollars.

By: Canadian Capitalist

Canadian Capitalist — Tue, 01 Jan 2008 01:49:22 +0000

Mike: Canadian subsidiaries of US companies probably won’t qualify as CCPC. You can simply ask your finance department if your employer is treated as a CCPC. In any case, you will pay tax on 50% of your stock option gains, if you exercise and sell immediately.

By: Mike L

Mike L — Mon, 31 Dec 2007 07:55:31 +0000

A follow up question on the 50% reduction on the stock option gain to make it similar to capital gains.

In the document pointed to – http://www.fin.gc.ca/drleg/wmmNov06n_3e.html – it does not mention the “Canadian Controlled Private Corporation” part that I have seen elsewhere in various discussions of this topic – e.g. http://www.grantthornton.ca/taxtips/taxtips_template.asp?TipID=92

If the company is US based but the employee is employed by the Canadian subsiduary (my situation too), does the 50% reduction really still apply against the profit gained from the stock options exercised? Or is the subsiduary considered a CCPC and thus the point is moot? Or can this CCPC point be ignored?

Thanks for a particularly timely post and any follow up answer you can provide or point out!

By: Calvin

Calvin — Wed, 19 Dec 2007 20:07:50 +0000

Very true… haha. I only wish I had options because the company has done very well since I joined.

Heck, I should have bought stocks when I joined… I have the benefit of hindsight of course. But I don’t like to lay all eggs in one basket (my employment, investments) — and of course, the limited trading windows.

By: Canadian Capitalist

Canadian Capitalist — Wed, 19 Dec 2007 19:55:28 +0000

Personally I’d rather have restricted stock than options. The trouble with options is that if they are underwater, they are worthless. RSUs are better because if the stock falls during the first year, at least there is some profit, albeit less than what you could have if the stock had gone up.

Having said that companies tend to give out far fewer RSUs than options and if there is a profit, options are better from a tax point of view.

By: Calvin

Calvin — Wed, 19 Dec 2007 19:35:14 +0000

Hahaha, I could have sworn I posted a similar comment in one of the threads — maybe at MDJ.

I too work for a Canadian office of a US company and received a grant of 500 RSUs.

125 vested recently, and I had to pay tax on that… it worked out to about 44% tax and seems to be considered income tax. I used the sell-to-cover option, which means almost half my shares were sold to pay off the taxes. The rest of the shares I was able to sell for a profit.

Stock options are far superior… and unfortunately I joined the company too late as earlier employees got options. They stand to gain so much more because they also received more options, plus they save a lot in taxes.