Restricted Stock Units are the most common equity compensation in Canadian tech, and the tax treatment is straightforward once you understand the two-event structure: the full fair market value at vesting hits your T4 as employment income (taxed at your marginal rate), and your adjusted cost base resets to that vesting price so you’re only taxed once. The biggest risk isn’t the tax itself — it’s concentration. If your salary, bonus, and RSUs all depend on one company, a stock drop hits your income, savings, and net worth simultaneously. For most people, selling RSUs at vesting and diversifying into a TFSA or RRSP is the safest approach.
RSU Basics
How RSUs Work
Term
Meaning
RSU
Restricted Stock Unit
Grant
Company promises future shares
Vesting
When you actually receive shares
Restriction period
Time until vesting
RSU Timeline
Event
What Happens
Grant date
Promise of future shares
Vesting schedule
Usually 3-4 years
Vesting date
Shares transfer to you
Sale
Whenever you choose
Tax Treatment
Two Tax Events
Event
Tax Type
Vesting
Employment income
Sale
Capital gain/loss
At Vesting
What’s Taxed
Full FMV of shares
Reported as
T4 employment income
Rate
Your marginal rate
Example
Details
RSUs vesting
100 shares
FMV at vesting
$50/share
Taxable benefit
$5,000
This $5,000 is added to your T4 income.
How Tax is Withheld
Common Methods
Method
How It Works
Sell-to-cover
Employer sells shares to pay tax
Net settlement
Receive fewer shares (net of tax)
Cash payment
You pay the tax separately
Sell-to-Cover Example
RSUs vesting
100 shares
Total value
$5,000
Tax owed (~40%)
$2,000
Shares sold
~40 shares
Net shares received
~60 shares
Withholding Rate
Typical Rate
~25-40%
May not match
Your actual rate
Shortfall
Pay at tax filing
Excess
Refunded at filing
Your Cost Base (ACB)
Important for Future Sale
Your ACB
= FMV at vesting
Why
You’ve already paid tax on this
For capital gain
ACB is your starting point
Example
At Vesting
Shares received
60
FMV per share
$50
Your ACB
$3,000 (60 × $50)
Later Sale
At Sale
Sale price
$4,200 (60 × $70)
ACB
$3,000
Capital gain
$1,200
Taxable (50%)
$600
RSU vs Stock Options
Key Differences
Feature
RSU
Stock Options
What you get
Shares at vesting
Right to buy shares
Cost to you
$0
Exercise price
Value if stock flat
FMV
$0 (no profit)
50% deduction
No
Maybe
Risk
Lower
Higher
Tax Comparison
Scenario
RSU Tax
Option Tax
Grant price $10
N/A
N/A
Current FMV $50
$50/share
$40/share
Value drops to $20
$20/share
$10/share (or nothing)
Managing RSU Taxes
Challenge: Concentrated Position
Problem
Large vesting
Significant tax in one year
All in one stock
Company-specific risk
Fluctuating value
Tax based on vesting price
Strategies
Strategy
Details
Sell immediately
Diversify, certainty
Hold long-term
Bet on appreciation
Partial sell
Balance both
Sell Immediately
Pros
Cons
Reduce concentration
Miss potential gains
Certain value
Trading restrictions may apply
Diversify
Taxes are the same
Hold vs Sell Analysis
Factor
Consider
Already heavy in company
Sell more
Company outlook
Your belief in growth
Other investments
Need diversification?
Risk tolerance
Can you handle drops?
Multiple Grants
Tracking ACB
Grant
Shares
ACB/Share
Total ACB
2023
50
$40
$2,000
2024
60
$55
$3,300
2025
40
$60
$2,400
Total
150
$7,700
Average ACB
$51.33/share
Selling Partial Holdings
Method
Canada uses average cost
Can’t choose
Specific shares to sell
Must use
Average ACB across all shares
Recording and Reporting
Your T4
What’s Included
Box 14
Includes RSU benefit
Box 57
Employment income from securities
What to Track
Information
Why
Grant details
Vesting schedule
Vesting dates
Each vesting event
FMV at vesting
For ACB
Shares received
Actual net shares
Sales
For capital gains
High-Income Considerations
Large Vesting Events
If Significant RSUs
Pushes you into
Top tax brackets
Consider
RRSP contribution
Or
Charitable donations
Tax Planning
Strategy
Effect
Max RRSP
Reduce taxable income
Donate to charity
Tax credit
Delay other income
If possible
Tax instalments
May be required
Special Situations
Company Goes Public (IPO)
Before IPO
Private company RSUs
At IPO
May trigger vesting
Lock-up period
Can’t sell immediately
Tax due
Even if can’t sell
Leaving the Company
Scenario
Effect
Unvested RSUs
Usually forfeited
Vested RSUs
Yours to keep
Check agreement
For specifics
US-Based Employer
Situation
Considerations
Canadian resident
Taxed in Canada
US withholding
Foreign tax credit
Form W-8BEN
For US tax purposes
The Bottom Line
RSUs are taxed as employment income at vesting — there’s no way to defer this. Your ACB equals the fair market value at vesting, so any later gain is a capital gain (50% taxable). Sell-to-cover is the most common withholding method, but check whether the withholding rate matches your actual marginal rate to avoid a surprise at tax time. For concentration risk, strongly consider selling at vesting and reinvesting into a diversified portfolio. Use the proceeds to maximize your RRSP and offset the RSU income, and track your average ACB carefully across multiple grant years.