How are the general rule and exceptions applied to equity-based compensation?

Tax Treatment of Restricted Stock Unit (RSU) Benefits | Canadian Capitalist

There are many forms of equity-based compensation or at-risk pay. Employers often modify these forms of compensation to offer incentives to their employees in a way that meets their objectives.

By way of illustration, we will look at Restricted Share Unit RSU plans and their taxation as it regards employees.

In Canada, RSU plans are commonly referred to as phantom plans because, under an RSU plan, the employee initially receives notional units, not shares. Compensation Planning in Light of Increased Scrutiny.

Finally, under an RSU plan, the payment can be made in cash or shares. The general rule, as discussed above, does apply and the ITA has no specific provisions for RSUs.

Unless the RSU fits within an exception, an employee pays tax on an RSU when he receives a unit, the right to receive cash or shares as compensation. Yes, the RSU can qualify under this exception to the general rule if the timing of the receipt of compensation is correct.

This ensures the SDA rules do not apply. Remember that the compensation, regardless of whether in the form of cash or shares, must be received within three years of the end of the year the compensation relates to, not three years from the date the RSU is granted.

Restricted Stock Units from US Company to Canadian Employee : PersonalFinanceCanada

It seems possible, but is not the normal course for RSUs. The RSU plan would need to provide that the compensation awarded pursuant to the RSU be shares only, not cash. However, the deduction that mimics capital gains taxation does not apply to RSUs. Our usual classification of differing forms of equity-based compensation is not particularly helpful in determining how we tax the compensation.

How Restricted Stock And RSUs Are Taxed

When determining how to tax equity-based compensation, there is no shortcut. Each plan granting this type of compensation needs detailed review. Then, the tax analysis must proceed through the provisions found in the ITA.

No shortcuts when calculating RSUs | cyzopuk.web.fc2.com

This team of in-house experts and professionals provides coordinated support to advisors to ensure clients have complete and comprehensive wealth plans in place. Retirement Resource Centre For the advisor who specializes in retirement planning. Earn Credits with us.

Access the EXPERTS when YOU need them. Tax News Estate Planning. Market Insights Alternative Investments Expert Podcasts.

Newsletter Magazine Magazine Archives LinkedIn Twitter RSS. About Privacy Terms and Conditions Ad Choices. Related Publications Conseiller CI Top Broker Benefits Canada Canadian Investment Review.