Selling RSUs before coming to Canada or after coming to Canada

[expressentry101]

Hi,

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?

Any response is appreciated, thank you

 

[Alex54321]

Hi,

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?

Any response is appreciated, thank you

I would love to hear an answers on your questions as well.

I assume you are not US citizen and when you move to Canada you would need to change your address with your brokerage to Canadian address. I would check for how long they will allow you to keep your stocks (45 days, 60 days ?) in US based account. I know that my RSU are with Etrade and this US brokerage will not allow a Canadian resident (which you will become) to keep US account and force to liquidate.

Please read (about a deemed disposition and taxation) https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/individuals-leaving-entering-canada-non-residents/newcomers-canada-immigrants.html

Another interesting reading is at https://home.kpmg/xx/en/home/insights/2011/12/us-income-tax.html . Read about
Termination of residence and a “sailing permit”.

You are right about no capital gain taxes from IRS for nonresident alien, but there is a 30% (or 15% because of US/Canada treaty) on dividends paid by US companies. So, if you will be a nonresident alien read https://www.irs.gov/pub/irs-pdf/p515.pdf (Withholding of Tax on Nonresident Aliens and Foreign Entities).

In my opinion I would sell US stocks before I move to Canada. To be clean with CRA do the following in that order - cash into Canada, then you, then your goods. This way you never have to explain where the money you are bringing in comes from.

 

[rahu22]

In the same boat, I am interested in getting an answer to the above questions as well.

 

[Alex54321]

In the same boat, I am interested in getting an answer to the above questions as well.

Not much help here, but something useful :

https://serbinski.com/stock-option-compensation-us-and-canada-comparison#1.03

 

[expressentry101]

So I moved in September, here is what I did (which I think is going to save me most on taxes).

Let's say before moving in Sep 2019, I had stocks worth 200k in USD in USA. The cost basis for these in USA was 150k. So if I was to pay taxes in USA before moving, I would pay taxes on 50K of gains.

If I do not sell these, I would mark these 200k as the amount I am bringing in Canada (no documentation needed at the time of coming to Canada, will come to this point later). Lets say I sell these in Canada in 2020 January. In 2020, I have no liability for paying taxes in USA. Lets say the price has now raised to 220k USD. When I sell the shares, I will pay taxes in Canada on the 20k gain (instead of the 50k gain in USA). I dont pay any more taxes in USA.

I made it overly simple and assumed that the USD to CAD rate is the same throughout. In practice, I will convert the USD rate to CAD on the day I moved to Canada and use the converted CAD value as cost basis while calculating the taxes owed.

Now, the key thing here is to make note of every single asset you have on the day you move to Canada - your 401k, other stocks, usd to cad rate, bank accounts etc etc. When you sell any of the investments, you will need to calculate what was the value in CAD at the time you came to Canada as a resident vs when you sell it and pay taxes on the difference. I took a screenshot of every account of mine, put it in a google doc and will use that as my reference.

Of course, things become simpler if you sell everything and just take cash to Canada. However, then I will have to pay tons to taxes to Uncle Sam.

Also, as long as you have documented everything properly, showing a trail of where money came from should not be a problem at all.

Hope this clears some doubts.

 

[rahul_im4u001]

So I moved in September, here is what I did (which I think is going to save me most on taxes).

Let's say before moving in Sep 2019, I had stocks worth 200k in USD in USA. The cost basis for these in USA was 150k. So if I was to pay taxes in USA before moving, I would pay taxes on 50K of gains.

If I do not sell these, I would mark these 200k as the amount I am bringing in Canada (no documentation needed at the time of coming to Canada, will come to this point later). Lets say I sell these in Canada in 2020 January. In 2020, I have no liability for paying taxes in USA. Lets say the price has now raised to 220k USD. When I sell the shares, I will pay taxes in Canada on the 20k gain (instead of the 50k gain in USA). I dont pay any more taxes in USA.

I made it overly simple and assumed that the USD to CAD rate is the same throughout. In practice, I will convert the USD rate to CAD on the day I moved to Canada and use the converted CAD value as cost basis while calculating the taxes owed.

Now, the key thing here is to make note of every single asset you have on the day you move to Canada - your 401k, other stocks, usd to cad rate, bank accounts etc etc. When you sell any of the investments, you will need to calculate what was the value in CAD at the time you came to Canada as a resident vs when you sell it and pay taxes on the difference. I took a screenshot of every account of mine, put it in a google doc and will use that as my reference.

Of course, things become simpler if you sell everything and just take cash to Canada. However, then I will have to pay tons to taxes to Uncle Sam.

Also, as long as you have documented everything properly, showing a trail of where money came from should not be a problem at all.

Hope this clears some doubts.

Thanks for the detailed response. I had few questions on the above approach:

1. Did you have to fill any documentation at the border to declare the total asset(401k + cash+ stock assets) that you are brining into Canada? I remember I had filled similar doc when I did my PR landing 2 years back and I had given rough numbers at that time. Is there something similar that you can declare when you are moving to Canada permanently. If there is no such documentation process, how does one justify to CRA these foreign assets while tax filing?
2. Also, in the example you mentioned, it seems like the cost basis for any foreign stock asset is the stock price on the day of move to Canada (200K in your example), and not the price at which the stock was acquired in US (150k). Did you confirm this with CRA/any tax consultant? Because in this example, if you sell your stock and consider 200k as the cost basis, there is 50k USD that on which you never paid any taxes, either in US or in Canada.
3. Are you able to retain your stock brokerage account and still transact in USD after the move? I have heard other firms like E-Trade automatically update the transaction currency to CAD once you update the address to Canada. Some firms also force you to liquefy the US account and open another CAD account.

 

[Alex54321]

Thanks for the detailed response. I had few questions on the above approach:

1. Did you have to fill any documentation at the border to declare the total asset(401k + cash+ stock assets) that you are brining into Canada? I remember I had filled similar doc when I did my PR landing 2 years back and I had given rough numbers at that time. Is there something similar that you can declare when you are moving to Canada permanently. If there is no such documentation process, how does one justify to CRA these foreign assets while tax filing?
2. Also, in the example you mentioned, it seems like the cost basis for any foreign stock asset is the stock price on the day of move to Canada (200K in your example), and not the price at which the stock was acquired in US (150k). Did you confirm this with CRA/any tax consultant? Because in this example, if you sell your stock and consider 200k as the cost basis, there is 50k USD that on which you never paid any taxes, either in US or in Canada.
3. Are you able to retain your stock brokerage account and still transact in USD after the move? I have heard other firms like E-Trade automatically update the transaction currency to CAD once you update the address to Canada. Some firms also force you to liquefy the US account and open another CAD account.

On 1 and 2. read the link about "a deemed disposition":
https://www.canadavisa.com/canada-immigration-discussion-board/threads/selling-rsus-before-coming-to-canada-or-after-coming-to-canada.651913/

Two main things are there : "A deemed disposition" and "You should keep a record of the FMV of your properties on the date you arrived in Canada".
Also you do not put IRA, 401K, stocks, mutual funds in the List of Goods ( or List of Goods to follow) during landing. Canadian customs and CRA are different bodies.

The 3. is more interesting question. My Fidelity and Vanguard brokerages told me that with address change I will be able to keep my US IRA/401K accounts with Mutual Funds only, BUT will have to liquidate all Stocks/ETFs. No changes to currency, they are still US IRA/401K.
If I still work for US company I'll be able to contribute to IRA/401k in US, but Canadian taxation of these US tax deferred contributions are different story...

 

[expressentry101]

Thanks for the detailed response. I had few questions on the above approach:

1. Did you have to fill any documentation at the border to declare the total asset(401k + cash+ stock assets) that you are brining into Canada? I remember I had filled similar doc when I did my PR landing 2 years back and I had given rough numbers at that time. Is there something similar that you can declare when you are moving to Canada permanently. If there is no such documentation process, how does one justify to CRA these foreign assets while tax filing?
2. Also, in the example you mentioned, it seems like the cost basis for any foreign stock asset is the stock price on the day of move to Canada (200K in your example), and not the price at which the stock was acquired in US (150k). Did you confirm this with CRA/any tax consultant? Because in this example, if you sell your stock and consider 200k as the cost basis, there is 50k USD that on which you never paid any taxes, either in US or in Canada.
3. Are you able to retain your stock brokerage account and still transact in USD after the move? I have heard other firms like E-Trade automatically update the transaction currency to CAD once you update the address to Canada. Some firms also force you to liquefy the US account and open another CAD account.

1. Nope. I just made a google doc with all the assets (and screenshots) on the exact date. Will refer to it while filing taxes. We don't need to declare it while moving.
2. Yep. confirmed with a CA. This is essentially rich people do when they renounce citizenship and move to islands.
3. This depends on brokerage. my brokerage allows this, however they have restricted trading and I can only sell what I have and can not buy and trade. Some brokerages ask to take out all money. Depends on brokerage.

 

[rahul_im4u001]

1. Nope. I just made a google doc with all the assets (and screenshots) on the exact date. Will refer to it while filing taxes. We don't need to declare it while moving.
2. Yep. confirmed with a CA. This is essentially rich people do when they renounce citizenship and move to islands.
3. This depends on brokerage. my brokerage allows this, however they have restricted trading and I can only sell what I have and can not buy and trade. Some brokerages ask to take out all money. Depends on brokerage.

Thanks @expressentry101 for the detailed post. This is valuable info.

 

[rahu22]

So I moved in September, here is what I did (which I think is going to save me most on taxes).

Let's say before moving in Sep 2019, I had stocks worth 200k in USD in USA. The cost basis for these in USA was 150k. So if I was to pay taxes in USA before moving, I would pay taxes on 50K of gains.

If I do not sell these, I would mark these 200k as the amount I am bringing in Canada (no documentation needed at the time of coming to Canada, will come to this point later). Lets say I sell these in Canada in 2020 January. In 2020, I have no liability for paying taxes in USA. Lets say the price has now raised to 220k USD. When I sell the shares, I will pay taxes in Canada on the 20k gain (instead of the 50k gain in USA). I dont pay any more taxes in USA.

Another question on the above example.

If you moved to Canada in mid 2019, did you have to delay the sale of RSUs until Jan 2020 in order to take advantage of deemed disposition and not to have to pay high taxes in the US. What if one sells RSUs AFTER moving to Canada but in the same year (2019 in your example).

P.S. - I moved to Canada in March 2020 and considering selling RSUs this summer.
Next year when I file US taxes for 2020 (as I had 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. But 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 for this year.

 

[Micky CPA USA & Canada]

Another question on the above example.

If you moved to Canada in mid 2019, did you have to delay the sale of RSUs until Jan 2020 in order to take advantage of deemed disposition and not to have to pay high taxes in the US. What if one sells RSUs AFTER moving to Canada but in the same year (2019 in your example).

P.S. - I moved to Canada in March 2020 and considering selling RSUs this summer.
Next year when I file US taxes for 2020 (as I had 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. But 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 for this year.

Well first part is correct but for second part ie when you move to Canada from USA, there different rules applicable in the year of your move out of USA. When you move out of USA you get 2 options when you file your USA Tax returns.
1) Dual Tax Returns - File tax as a Resident from Jan to March & April to Dec as a Non Resident & for Canada tax report income earned only in Canada. This option is generally beneficial because you dont have to report any other income earned outside USA after you have moved out & hence no canada income or any foreign income to be reported & hence less tax. However Benefits of this option is dependant on your income level & your filing status.

2) Report full year income as Resident in USA. - Report income earned in Canada & use Foreign Tax credit & other benefits based on the USA- Canada Tax Treaty. Canada Tax - Report income earned as a resident of Canada & apply a tie breaker rule based on the US- Canada Tax treaty.

 

[jclarke99]

My response assumes that you are a U.S. Citizen (with PR status in Canada) with 401k and/or other IRA funds (don't know if RSU would be treated differently).

1. Rather than selling all retirement shares before moving to Canada, consider transferring to a Roth IRA. Yes, in both cases you'd be paying significant U.S. Taxes on the distribution. But the Roth would allow for tax free growth, in both U.S. and Canada, going forward. Upon moving to Canada, you should notify CRA about your Roth. Now you need to do the math. You might be in a rather high U.S. income tax bracket now (so you'll take a significant tax hit), and if you wait until retirement instead, and presumably in a lower tax bracket, it could make more sense to leave the retirement accounts alone until retirement. Of course, none of this applies to non-retirement accounts (perhaps the case of your RSU).

2. The idea of not having to pay any tax (to the U.S. or Canada) for the growth in your account before moving to Canada just doesn't meet face validity. My understanding is that for non-retirement (taxable) accounts, like others have stated, you should be accounting to CRA for gains since arrival to Canada, and gains prior to moving to Canada to Uncle Sam (again, assuming that you are a U.S. Citizen). So, yes - good idea to get a copy of the worth of every individual investment upon the date of moving to Canada. You'll also need to take into account the C$ to US$ exchange rate at the date of your move to Canada and the date of the sale of any such securities.

How are IRA/403k distributions taxed upon withdrawal in Canada? That's where it is fuzzy to me (because the tax treaty law seems fuzzy). Is it the case that you declare the full distribution to both countries, pay taxes first in the U.S. and take the foreign tax credit on Canadian taxes (and ultimately pay the higher rate of the two countries)? Or is the process similar to that of taxable accounts, whereby the move date to Canada serves as the dividing line (value up until move to Canada would be taxable in the U.S., and appreciation/gains since the move would be taxable in Canada)? If anyone knows the answer to this, please share.

Finally, I searched for brokerage firms that will allow my securities to stay in a U.S. account while I have a Canadian address (few firms do). Charles Schwab One International Account handles my IRA and Roth IRA securities. Schwab doesn't currently have an option for non-IRA (taxable) funds. For that, I'm using Interactive Brokers Universal Account. I guess I could have used only Interactive Brokers, but I like to diversify across brokerage firms.

Appreciate any feedback on my assumptions above.

 

[jclarke99]

Some additional advantages of leaving investments in U.S. brokerage accounts...
- Many more investment options than in Canada
- Tend to have less expenses
- Currency diversification (which may end up being a plus or a minus)

 

[deadbird]

Hi,

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?

Any response is appreciated, thank you

Very interesting. Have you figured out the mechanics of how you would transfer the stock to a Canadian brokerage? An ACAT transfer?

When I moved from the US to Canada and I stopped being a US tax resident, I had to liquidate all my brokerage accounts since no US brokerage serves non-US tax residents. Your 401K and Roth-IRA will persist but they won't let you make any changes to investments except sell them.

 

[deadbird]

Some additional advantages of leaving investments in U.S. brokerage accounts...
- Many more investment options than in Canada
- Tend to have less expenses
- Currency diversification (which may end up being a plus or a minus)

Not sure about this. Most Canadian brokerages e.g. Questrade, Interactive brokers let you trade in world markets e.g. USA.
You can also hold currency in USD. So you lose nothing in terms of choice.

Of course, you don't have Robinhood. But I'm not sure you'd want that anyway.