# Restricted Stock Awards



## Tax Dummy (Mar 14, 2012)

I was granted 1000 RSA's in october of 2011 with them vesting over 1/3 in each the next 3 years in October. My company has just come back to me and informed me that I need to pay taxes on the entire RSA's value for 2011 tax year. This does not seem right to me. Should I not be taxed on the value of the shares as they vest? They also told me that if the RSA's do not vest, I can not get my tax payment back, is this right? It seems odd to me that I would pay taxes on something that is not my control until vesting. They are using this document as thier reference http://m.gowlings.com/knowledgeCentre/publicationPDFs/20100824_2010 Cross-Boarder Comp.pdf . It is from gowlings.com and can found by googleing Cross-Border Executive Compensation. 

Any insight would be helpful or direction to get clarifaction.


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## kcowan (Jul 1, 2010)

There was a case where the employees were let off the hook when the ultimate value of the stocks dropped, leaving them with a tax liability and not easy means of raising the money. This is why Gowlings is being very clear because CRA closed that loophole. They expect you to pay the tax from the first third of your options. Some brokers will lend you the money to do this. It depends on what kind of company you work for. Here is a reference:
http://www.canadiancapitalist.com/reader-question-on-restricted-stock-units/


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## SlightlyMad (Jun 30, 2009)

Restricted Stock Awards have always been that way in Canada. Yes, you pay tax on them immediately, and then any change in value is a capital gain (as it says in the article). If you forfeit the stocks (due to employment change, for example), you get a big capital loss but they don't offset each other since you pay tax as income. 

Restricted Stock Units are generally speaking better for Canadian employees because their taxable hit occurs on payout rather than on grant (when you have the money or shares in hand). As the Gowlings article points out under RSAs: "To avoid adverse tax implications, the Canadian taxation of the awards should be considered before a restricted stock plan is implemented in Canada." Perhaps you can ask your HR people why they don't offer RSUs to Canadians instead of RSAs ...


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## CanadianCapitalist (Mar 31, 2009)

Also, I'm surprised that RSAs are not taxed at source. Since 2011, all stock based compensation such as ESPPs, stock options and RSUs are taxed at source. I would have thought RSAs would be treated the same. i.e. the tax owing will be deducted from the paycheque and remitted to CRA.


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## Tax Dummy (Mar 14, 2012)

[
The company seems to have admitted they made a mistake in issuing the RSA's to Canadian employees. They are attempting to find a solution but if RSA’s do not vest I appear to be out the taxes which seems harsh and unfair. I am currently exploring another opportunity and the idea of losing $10000 to the tax man on income that I can never have due to the shares not vesting seems harsh and unfair. Taking a loan from the company to pay the tax bill and then having to work at the company for 1 year to get the money to pay it off almost seems like a modern day form of slavery. They could do whatever they wanted to you and you could not leave due to the loan and needing the RSA’s to vest to pay it off. Do you think I would have any legal options to obtain some settlement of the money from the company?


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## ebeh (Mar 27, 2012)

*Paying taxes on RSA & RSU*

Hi this is a timely thread.

TaxDummy, you say, "I was granted 1000 RSA's in Oct 2011 with 1/3 shares vesting each October for three years."It sounds like you were granted an RSU, rather than an RSA. These are taxed differently and I think there needs to be clarification between RSA's and RSU's. 

An RSA would of been a stock certificate of the company (in the amount of 1000 shares) printed out and given to you in October 2011. If the issuing company is American, the stock is subject to restriction under Rule 144, and the certificate would have a red stamp on it indicating such. If there was no contract b/w you and your company and you are holding on to the physical certificate, then it is yours free and clear (minus taxes owed to the Cdn gov't) and their 1/3 vesting rule means nothing. 

If you signed a contract however, and/or if you do not have the certificate in hand, things change.

It sounds to me like in Oct 2011, rather than receiving a stock certificate for 1000 shares, you may have signed a contract to receive the Fair Market Value (either in cash, or in stock) of approx. 333 shares, each October for three years? If this is the case, this is a Restricted Stock Unit, not a Restricted Stock Award, and this is where clarification is needed.

How did it go in your situation ?

I'm currently filing taxes for an RSA I received, and because the issuer was an American listed company, my RSA was subject to a restriction under SEC's rule 144. Based on this restriction, and after doing research and reading this article (http://bit.ly/Ha6fIR), I've made a financial model to discount the FMV of my stock on its day of grant, which has reduced the amount of Other Employment Income I'm including on line 104 of my return (and will subsequently increase/decrease the difference in my cost basis for capital gains/losses when the stock is eventually sold)

I'd like to learn more about your situation, and I can send you the model I used if you think it will help you apply the applicable discount to your tax burden.


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## Young&Ambitious (Aug 11, 2010)

Ebeh, is your model Black Scholes?


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## ebeh (Mar 27, 2012)

Young&Ambitious said:


> Ebeh, is your model Black Scholes?


Yes, but it's slightly modified.


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