Question:
I moved from the U.S. to Canada in April of 2024 after I got my Canadian PR approved. I have RSUs that were granted while I was in the U.S., however, they are going to vest while I am here in Canada. Is this income reported on Canadian Individual Tax Return?
Asked by: Krishna
This response is not a tax advice. We post responses to some questions if they interest a wider audience. If you are looking for an answer to a similar question, we strongly recommend to consult a professional income tax accountant.
This is a very common question when individuals move from the U.S. to Canada. It could be the same employer who moved you from the U.S. offices to the Canadian one, or a simple relocation.
Restricted Stock Units (RSUs) have a grant date and a vesting date. Like you, it is possible that your employer granted them while you were in the U.S., however, they will vest after you move to Canada.
U.S. Tax Treatment of RSUs
Per the domestic tax law of the United States, the grant of RSUs is not a taxable event, vesting is! It means that your employer will report these RSUs on your W2 when these RSUs are vested. That is the time when you will report it on your 1040/1040NR.
The complexity comes when the same employee leaves the U.S. At vesting, your employer reports the same income on W2 and withholds both income taxes and FICA taxes. They may also some of those vested shares to recover the payment of these taxes.
Canadian Tax Treatment of RSUs
In Canada, RSUs are taxed as employment income at the time of the vesting. However, be mindful of SDA provisions of the Income Tax Act where the income could be taxed earlier than that.
The employer will withhold CPP, EI and Income taxes, and report all these amounts on the T4. From T4, it then gets reported on the individual income tax return in Canada.
Allocation between Canada and the U.S.
How do you report these RSUs on your tax return?
Your employer may perform this allocation and provide you with W2 and T4 showing allocated amounts. However, there are cases where employers report the same amounts both on W2 and T4 without allocation.
In such a case,
- You need to allocate the FMV of the RSUs on the vesting date between the U.S. and Canada. You can do so based on the number of days.
- Report the W2 amounts on 1040NR. If you need to remove the Canadian-sourced amount, claim a deduction, attach a statement to the tax return explaining that allocation and possibly 8833 if needed.
- Report the full amount on the Canadian tax return (T1), and claim the foreign tax credit on the Canadian tax return. Be mindful that the Canada Revenue Agency almost always reviews foreign tax credits on Canadian tax returns in such cases.
The above-mentioned reporting process is for individuals who are not U.S. Citizens or Green card holders (or who have given up the Green card). If you are a U.S. citizen you need to still report all the income on the U.S. tax return, and you will have to carefully claim foreign tax credits on ‘both’ tax returns to avoid double taxation.
Maroof HS Cross Border Tax Professional Corporation is your one-stop solution for both Canadian and U.S. tax services. We can assist with the preparation of accurate Income tax returns for both the U.S. and Canada, as well as tax planning while moving from the U.S. to Canada (or vice versa).
