Selling RSUs while moving from US to Canada

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hi_rahul
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Joined: Wed Feb 05, 2020 4:00 am

Selling RSUs while moving from US to Canada

Post by hi_rahul »

Quoting a question on RSU sales, Any response is appreciated.

Hello all, I will be moving from California, the US to Canada permanently In Sep 2019. I have some RSUs that were granted to me by my US employer and have vested. There has been a 30% withholding in the US for all of these RSUs but I haven't sold any. I am not sure how taxation will work for these RSUs when I move to Canada. Can someone help me with my questions, please?

Selling stock in the USA:
1. Let's say I have 150K worth of stocks(100K is the cost basis in USA + 50K long term gains). If I sell 150k$ worth of stock while I am in the US, I will be paying 18% federal + 9% California tax on gains (total 13.5k USD) but all the remaining money 136.5K USD can be transferred to Canada without any tax implications. Is this correct?

Selling stock in Canada:
Let's say the total stocks I have is 150k (100K is the cost basis in USA + 50K gains). I do not sell the above 150k$ stock in the USA. When I move to Canada, I sell these in the next tax year (2020). I assume that these stocks grow to 160k in 2020.
1. Since when I entered Canada, stocks were worth 150K and when I sold they were 160k), the gains in Canada are only 10k. So in Canada, I have to pay taxes only on the gain of 10K$ (= almost 2.5K$). Is this correct?
2. In the USA, I don't have to pay any taxes on any gains since I don't have a residency. Is this correct?
nelsona
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Re: Selling RSUs while moving from US to Canada

Post by nelsona »

I assume you will be moving in 2020, not 2019.

Your analysis is correct IF you are not a US taxpayer at that time. You would best do this in the year following your departure from US, since most file a full year tax 1040 in the year of departure.

If you ARE a US citizen of GC holder, then there is no way to avoid the US tax, even later on, so you can sell when you wish. By delaying you would avoid California tax of course.

The tax you initially paid for the RSU is just an estimate, since this was merely the withheld amount. You will include these as ordinary income on your 1040 for 2019 and calculate your tax accordingly, for IRS and California.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
hi_rahul
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Joined: Wed Feb 05, 2020 4:00 am

Re: Selling RSUs while moving from US to Canada

Post by hi_rahul »

Thanks for the response.
I am not a US citizen or Green card holder. In case I sell my RSUs AFTER moving to Canada, what fair market value (FMV) should I consider for determining the capital gains. Is it the value of the stock on the date when I moved to Canada and became a tax resident, or is it the base price at which the stock was granted in the US.

I know that Canada enforces ‘departure tax’ to make emigrants pay capital gains on stocks based on the FMV on that date of departure (even if you haven’t sold any stocks). Not sure if US has something similar.
https://www.canada.ca/en/revenue-agency ... .html#dptx
nelsona
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Re: Selling RSUs while moving from US to Canada

Post by nelsona »

The FMV will be on the date you become resident, which is the date of arrival you indicate on your Cdn return. It is known as deemed acquisition on arrival and is the complement of deemed disposition on departure.

US has no such scheme, since there is the assumption you will always be taxable (like a citizen for example)). Since you are not, and since the treaty protects Cdn residents from US taxation on most gains, including this one, if you wait until you are no longer taxable in US (in 2021), you will owe no tax on the gains from the RSU between vesting and sale.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
hi_rahul
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Joined: Wed Feb 05, 2020 4:00 am

Re: Selling RSUs while moving from US to Canada

Post by hi_rahul »

Thanks for your response.
hi_rahul
Posts: 5
Joined: Wed Feb 05, 2020 4:00 am

Re: Selling RSUs while moving from US to Canada

Post by hi_rahul »

nelsona wrote:
> The FMV will be on the date you become resident, which is the date of
> arrival you indicate on your Cdn return. It is known as deemed acquisition
> on arrival and is the complement of deemed disposition on departure.
>
> US has no such scheme, since there is the assumption you will always be
> taxable (like a citizen for example)). Since you are not, and since the
> treaty protects Cdn residents from US taxation on most gains, including
> this one, if you wait until you are no longer taxable in US (in 2021), you
> will owe no tax on the gains from the RSU between vesting and sale.

A quick followup question on the above recommendation? Is it recommended to use the bank account in Canada for all future RSU sale proceeds if I do not want to show capital gains in US. Alternatively, does it matter if I use my US bank account instead while residing in Canada?
P.S. I moved to Canada earlier this year and should be Canadian resident for tax purposes.
nelsona
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Re: Selling RSUs while moving from US to Canada

Post by nelsona »

Which account you use is immaterial
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
hi_rahul
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Joined: Wed Feb 05, 2020 4:00 am

Re: Selling RSUs while moving from US to Canada

Post by hi_rahul »

nelsona wrote:
>
> Your analysis is correct IF you are not a US taxpayer at that time. You
> would best do this in the year following your departure from US, since most
> file a full year tax 1040 in the year of departure.
>

Hi nelsona, Thanks for your inputs so far. Could you kindly elaborate on the above point?

I moved to Canada in March 2020 and considering selling RSUs this summer.
Next year when I file US taxes for 2020 (to report US income between Jan to March 2020), what fair market value (FMV) should I consider for determining the capital gains. Is it the stock price on the date I arrived in Canada (as outlined in the comment above) or the original vest base price?

I know that one has to report global income during the full year when filing taxes for US and Canada, and any taxes already paid in Canada can be claimed as foreign credit when filing for US (and vice versa). I believe if I show FMV as my Canada arrival date on Canada taxes, I have to show the same FMV on US taxes as well. Will that be correct?

I understand that it all works out well if I delay RSU sale until next year in 2021 when I am no longer liable to taxes in US in 2021. But curious what’s the case if the stocks are sold in 2020.
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