RSUs and Cross-Border Moves Between the U.S. and Canada

Restricted Stock Units (RSUs) are a common form of equity compensation, particularly for employees of public and fast-growing companies. While RSUs can be highly valuable, they frequently create unexpected tax issues when an employee moves between Canada and the United States. The key challenges involve when RSUs are taxed, how the income is sourced, and how to avoid double taxation.

What is an RSU?

An RSU is a promise by an employer to deliver company shares at a future date once certain conditions are met, typically continued employment through a vesting period. Unlike stock options, RSUs generally have no purchase price. When RSUs vest, the fair market value of the shares is treated as employment income.

How RSUs are taxed

Both Canada and the U.S. tax RSUs at vesting, not at the grant date. The value of the shares at vesting is included in employment income and subject to payroll withholding. Problems arise when an employee moves between countries before vesting, because tax residency alone does not determine which country has taxing rights.

Why sourcing matters

RSU income is sourced based on where the employee worked during the vesting period, not where the employee lives at vesting. This sourcing rule applies in both countries and is supported by the Canada–U.S. tax treaty. If services were performed in both countries during the vesting period, the RSU income must be allocated between them based on workdays.

A common cross-border scenario

An employee is granted RSUs while working in Canada and later relocates to the U.S. before the RSUs vest. At vesting, the shares are worth $100,000 and the employee is now a U.S. tax resident. Canada may still tax the portion of the RSUs tied to Canadian workdays, even though the employee has left the country. At the same time, the U.S. will tax the RSUs at vesting because the employee is now a U.S. resident taxable on worldwide income. Without proper allocation and foreign tax credit planning, the same income can be taxed twice.

Why problems arise

Employers typically withhold tax based on current payroll location, not treaty sourcing rules. This often leads to withholding in the wrong country, cash-flow strain, and delayed refunds. Additional complexity comes from reporting requirements and mismatches in timing or income characterization between the two tax systems.

Conclusion

RSUs can significantly increase income in a single year and push taxpayers into higher marginal tax brackets. When combined with a cross-border move, proactive planning is essential to manage sourcing, withholding, and foreign tax credits.

If you are moving between Canada and the US and hold RSUs, MCA Cross Border Advisors can help you plan ahead, properly allocate income, and reduce cross-border tax risk before costly surprises arise.