WealthRSUs and ESPPs: How Stock-Based Compensation Is Taxed in Canada
What Is an RSU and How Is It Taxed?
A restricted stock unit (RSU) is your employer's promise to deliver shares of the company at a future date once certain conditions are met — typically a vesting schedule. The critical point: RSUs are not taxed when they are granted, but when they vest.
At the moment your RSUs vest and the shares are transferred to you, the fair market value (FMV) of those shares on that date is added to your employment income. You will see this amount on your T4 slip, in box 14 or box 38. The Canada Revenue Agency (CRA) treats this as a taxable employment benefit — the same as a cash bonus.
Your employer is responsible for withholding tax on this amount, but always verify your T4 — errors do happen.
| Correct (ACB = vesting price) | Common mistake (ACB = $0) | |
|---|---|---|
| Vesting price per share | $50 | $50 |
| Sale price per share | $60 | $60 |
| ACB used | $50 | $0 |
| Capital gain per share | $10 | $60 (over-reported) |
Using a $0 ACB instead of the vesting-day value means the entire sale proceeds get taxed as capital gain again — even though the vesting value was already taxed as employment income.
Your Adjusted Cost Base (ACB) After Vesting
Once you hold the shares, your adjusted cost base (ACB) equals the FMV at the time of vesting — the same amount that was taxed as employment income. This is the detail that prevents double-taxation.
Simplified example: if your RSUs vest when the shares are worth $50 each, your ACB is $50 per share. If you later sell at $60, your capital gain is $10 per share — not $60. If you sell immediately at vesting, your capital gain is zero or minimal.
For a full explanation of how ACB works, see our article on adjusted cost base and its tax impact.
Capital Gains When You Eventually Sell
After vesting, if you hold your shares and sell later, the difference between your proceeds and your ACB is a capital gain (or loss). In Canada, the capital gains inclusion rate for individuals is 50% under certain thresholds — confirm the current rate with the CRA, as rules can change. The taxable portion is added to your income in the year of sale.
Learn more about how investment income is taxed in our article on investment income taxation in Canada. For a deeper dive, see our guide to capital gains tax in Canada.
| Component | Amount |
|---|---|
| Market value of shares | $100 |
| Price you paid | $85 |
| Taxable benefit (reported as employment income) | $15 |
| Your ACB (price paid + benefit) | $100 |
Forgetting to add the $15 taxable benefit to your $85 purchase price means your ACB is understated by $15 — causing that amount to be taxed twice when you sell.
ESPPs: Employee Share Purchase Plans
An employee share purchase plan (ESPP) lets you buy shares of your employer at a discount — often 10–15% below market value. That discount is generally a taxable employment benefit and must be reported as employment income in the year of purchase.
Your ACB for those shares includes both the price you paid and the taxable benefit you reported. In other words, if you paid $85 for shares worth $100, your ACB is $100 ($85 + $15 benefit). Failing to include the benefit in your ACB leads to double-taxation on the sale — a very common mistake.
Check directly with the CRA for details specific to your plan structure, as rules vary depending on how the ESPP is designed.
RSUs
- Taxed at vesting, not at grant
- Fair market value at vesting is added to employment income (shows on your T4)
- Your ACB resets to that vesting-date value
Stock options
- Taxed at exercise, not at grant
- The taxable benefit generally arises when you exercise the option
- A 50% stock option deduction may apply in certain cases, subject to annual caps and legislative changes
Stock Options: Different Rules Apply
Employee stock options follow a separate set of rules from RSUs. The taxable benefit generally arises when you exercise the option (not when it is granted). In certain circumstances, a 50% stock option deduction may apply — but this deduction has been subject to legislative changes and annual caps. If you hold options (not RSUs), review the current rules with the CRA or a tax professional.
Additional Considerations
- US-listed employer shares: if your employer is listed on a US exchange, US withholding tax may apply to any dividends received. Additionally, if the total value of your foreign property exceeds CAD $100,000, Form T1135 is required. See our article on US dividend withholding tax for more details.
- Single-stock concentration: holding a large position in your employer's shares means a significant portion of your net worth depends on one company's performance. This is a risk worth understanding — not a tax issue, but an important financial reality.
- Documentation: keep all vesting statements and purchase confirmations so you can calculate your ACB accurately. Good record-keeping prevents headaches at tax time.
📑 Calculator: tax on RSU shares (at vesting)
At vesting, the value of the shares is taxable employment income.
Estimate for information only — not tax advice. Your ACB becomes the vesting price.
Frequently asked questions
Are RSUs taxed at grant or at vesting?
At vesting. The day your RSUs vest and the shares are delivered to you, the fair market value on that date is taxed as employment income. Nothing is taxed at the grant date (when your employer merely promises you the shares).
What is my ACB on shares received through RSUs?
Your adjusted cost base (ACB) equals the fair market value of the shares on the vesting date — the same amount included in your employment income on your T4. This ACB becomes your starting point for calculating any capital gain or loss when you eventually sell.
Is the ESPP discount taxable?
Generally yes. The portion you do not pay (the discount) is typically treated as a taxable employment benefit in the year of purchase. Confirm the exact treatment based on your plan structure with the CRA or a tax advisor.
Why do some people over-report capital gains on RSU shares?
Because they forget that their ACB was reset to the vesting-day value. They use a zero ACB and treat the entire sale proceeds as a capital gain — even though a portion was already taxed as employment income at vesting. Tracking your ACB correctly avoids this error.
Do I need to file Form T1135 if I hold shares of a US employer?
If the total value of all your foreign property (including shares) exceeds CAD $100,000 at any point during the year, Form T1135 is required. Check the CRA website for the exact thresholds and exceptions that apply to your situation.
Are stock options taxed the same way as RSUs?
No. Stock options follow distinct rules — the taxable benefit generally arises when you exercise the option, and a 50% deduction may apply in certain cases subject to annual limits. If you hold options (not RSUs), consult the CRA or a tax professional for the current rules.
Sources & references
Educational content; verify figures with official sources before acting.