How should I report foreign Restricted Stock Unit (RSU) awards on T1135?

[satang_lapin]

As part of my compensation, my employer awards restricted stock units (RSUs) of an American company at various times in the year. These are held in an American account.

Each time the RSUs vest, the employer sells a certain number of shares to cover withholding tax.

I think I should report this on T1135 in the following manner, but I'd like to confirm whether this is correct.

- Report under category 2, 1. Report under category 2, "Shares of non-resident corporations (other than foreign affiliates)"

- "Maximum cost amount during the year": Set to zero, as I have no cost/ACB due to not having purchased these shares myself.

- "Gross income": report the gross Canadian-dollar value at the time the RSUs vest. Example: On February 2018 I get 10 shares vesting at a price of $9CAD/share, and 4 are sold for tax purposes. On September 2018 I get 5 shares at a price of $8CAD/share, and 2 are sold for withholding tax. Report 9*10 + 8*5 = $130

- "Gain (loss) on disposition": report capital gain or loss, if I had sold any shares during the year. But for this reporting, should I count the ACB as zero, or should I calculate the ACB as if I had purchased the shares at fair market value on the vesting dates?

Also, if I had received RSUs in the previous year but my total foreign property ownership was under $100,000 in that year, do I need to report these RSUs somehow on T1135?

[satang_lapin]

** EDIT: see my additional comment below, which contains a revised answer from CRA. This answer is not totally correct **

I called CRA. The agent I spoke with confirmed that these items are correct:

- use category 2

- cost amount is zero

- report RSU amounts under gross income

Regarding previous year RSUs under $100,000: the agent said that this did not need to be reported in T1135 for 2019 as it was not part of my income for 2018.

Regarding gain/loss on disposition: Documentation from my company indicates that the ACB should be calculated using the fair market value and number of shares on each vesting date. That makes sense to me since the gross amount of the RSUs were already reported as income in box 14 of my T4, and withholding taxes were already deducted by selling shares to cover the taxes (box 22). If ACB was taken to be zero, the disposition would basically be double-taxed.

[satang_lapin]

The earlier answer I posted is incorrect. Below is a revised response from CRA.

I was not satisfied with the earlier approach because it doesn't capture stock accumlations from previous years. I called CRA again at their inquiries line (1-800-959-8281). The agent I spoke with gave the same response as described above. However, she felt uncertain about this and said she would get someone to get back to me after looking at it more deeply.

A couple of days later another agent called me back. This agent sounded very confident in saying that the treatment should be as follows:
1. Cost amount is the total adjusted cost base (ACB) of all stock grants from 2018 and 2. Income should only be for things like dividends/distributions, not for the awarded stock amount
3. gain/loss on disposition is the capital gain/loss on selling the stock, based on the ACB.

This is also consistent with what a colleague was told by an accountant from a tax preparation company.

I had already filed my taxes based on the earlier advice. She said it would be okay to use ReFile to revise it. (https://www.canada.ca/en/revenue-agency/services/e-services/e-services-businesses/refile-online-t1-a...)

She agreed that the FAQ (https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/information-been-mo...) was not clear enough about this and there were proposals put forth to improve it. However, changing the FAQ is not straightforward because the terminology in there must adhere to the Tax Act, which doesn't have definitions for things like foreign restricted stock units.

She suggested using the "Report a problem or mistake on this page" at the bottom of the FAQ to let CRA know that this is a concern. I'll do this, and in order to let CRA know how widespread this situation is, I encourage others to also do so.

[jjackji]

Hello !

Came across your post while being confused on the same topic.

Thank you so much for sharing the information you received from CRA.

I have a quick follow up question, and I would appreciate any help possible! Thanks in advance!

Take an example, on vesting date, you receive 100 shares with fair market value of $10 per share. Your company withholds and sell 40 shares on your behalf to cover taxes. Your paystub will see a $1000 added gross income, and $400 taxes withheld. 

So you receive 60 shares in your brokerage account. 

To calculate ACB, which of the following calculation is performed:

1. Buy 100 shares at $10, Sell 40 shares at $10

OR

2. Buy of 40 shares at $10

(Note that scenario 1 and 2 will give different new ACB value based on your previous ACB before the vesting date).

Which is correct in your opinion ?

Would appreciate any help possible.

Thanks again!

[jjackji]

Small edit on my previous post. Scenario 2 should say:

Buy 60 shares at $10.

Sorry for confusion

[TaxQuestion1111111]

I have the exact same question. It is compounded by the fact that the vesting price and the sale price of the RSUs are usually slightly different - ie there appears to be a slight gain or loss on the sale to cover taxes after RSUs vest.

I think this issue comes down to two questions:

1) Did I really have ownership of the shares sold to cover taxes since they were not voluntarily sold by me and I had no control over them? Or did the company effectively give me cash for the portion submitted to cover income taxes and I never really took ownership of those shares, and hence they would not be part of my ACB. On my account statement, I do see that the shares sold to cover taxes enter my account and then are subsequently sold and I receive trade notifications of the sale to cover taxes. 

2) If the answer to the above question is that I did have ownership of the shares sold to cover taxes, and hence I need to report the sale to cover taxes on my tax return, are these shares sold to cover taxes considered identical properties to shares owned prior to this RSU grant vesting, or do they fall under the exception that CRA lists in their 2018 Capital Gains guidelines that states the following (page 22):

https://www.canada.ca/content/dam/cra-arc/formspubs/pub/t4037/t4037-18e.pdf

Note Generally, the following properties are not considered identical properties: 

■ securities acquired under an employee option agreement that are subject to the benefit deferral or are designated and disposed of within 30 days 

■ certain employer shares received by an employee as part of a lump-sum payment upon withdrawal from a deferred profit sharing plan

As a result, the ACB averaging rule described above does not apply to these types of securities. Each of these securities will have its own ACB determined in the usual way.

I am uncertain whether an RSU grant, which involves shares and not options, is considered "an employee option agreement" or not. Clearly these definitions affect how ACB would be calculated on this sale.

Any help or guidance here would be appreciated.

Thanks