Does Canada Tax US Company Stock Options

jgoveas · Post by **jgoveas** » Wed Jul 15, 2009 11:45 pm

Hi Neslona,

I have a question for next year's tax return (do I get points for asking early?)
When my husband took his new job in the states, he was offered stock options which had to be vested for a year. Tomorrow they become his. However, we are leaving to go back to Canada on August 9th. He anticipates that the stock will rise this year and doesn't want to sell right away. Also, I think in the states if you sell stocks within a year you get taxed at 50% but not if you wait for more than a year? Well, I'm wondering for Canadian tax purposes though, if we leave on August 9th and then sell the stocks when we move to Canada, does that complicate the taxes for 2009? And will Canada tax the money we make on those stocks or does the US only tax it if we file a 1040 for the full year? Essentially I'm wondering if it's better to sell the stocks before we leave even if we don't make as much as we would if we were to keep them.

Thanks very much for any advice! I hope your summer's been going well!

Joanne

nelsona · Post by **nelsona** » Thu Jul 16, 2009 4:51 am

The Cdn tax you pay later would be equivalent to the US tax yoy would pay now, so it probablt best to keep them until you really want to sell them.

jgoveas · Post by **jgoveas** » Thu Jul 16, 2009 10:08 am

Oh Thanks! So, when we do sell them, we wouldn't be paying tax to the US but only to Canada if we reside there at the point we sell them? Thanks Nelsona!

nelsona · Post by **nelsona** » Thu Jul 16, 2009 11:04 am

If you have exercised the options before leaving that would be correct.

jgoveas · Post by **jgoveas** » Thu Jul 16, 2009 11:15 am

Ok sorry this is where I get dumb. How do we exercise the option before leaving. I.e. is there a process where we say we would like the option to sell after we leave the country? Or am I confusing the issue.

nelsona · Post by **nelsona** » Thu Jul 16, 2009 11:53 am

I'd suggest you and your husband read up on what exactly his company stock optios rules are.

But, generally, one exercises an option by 'taking possesion' of the stocks in question, paying the option price, and then either selling them immediately or selling them later. Usually both the exercise and sale trigger some form of taxation. Depending on the type of option, (a) the exercise would be considered ordinary income and the sale would be considered gains, or in the case of ISO (b) both would be considered gains, payable at final sale.

In canada these are always teated like (a). The recent treaty gave some changes to the rules on cross-border options, but I don;'t think this would afect you unless you wait to exercise the options until after you leave US.

So, if your husband has not eercised his options, ie he doesn't have the stock yet, he should probably do this before leaving US. he will be taxed in US on the difference between the option price and the current stock price, and unless the option prioce was 0, he needs to come up with the money for the option price.