# Stock Options and RSU Tax in Canada: How It Works > How RSUs and employee stock options are taxed in Canada: income at vest or exercise, the 50% option deduction, the $200,000 limit and selling shares. Source: https://trykosh.com/learn/stock-options-and-rsu-tax-canada Guide - Income tax # How stock options and RSUs are taxed in Canada Equity compensation is taxed in two steps in Canada: first as employment income when you receive the shares, then as a capital gain or loss when you sell. RSUs and stock options differ in timing and in one valuable deduction. Here's how each works. Updated October 31, 20263 min readBy the Kosh team On this page[How are RSUs taxed in Canada?](#rsus)[Worked example: an RSU vest](#rsu-example)[How are employee stock options taxed?](#options)[What happens when I sell the shares?](#selling)[US shares, Form T1135 and currency](#us-shares)[Ways to manage the tax](#manage)[FAQs](#faq) ## How are RSUs taxed in Canada? When restricted share units vest and the shares are delivered, their fair market value that day is employment income: it's added to your T4 and taxed at your marginal rate, with CPP and EI if you haven't reached the maximums. That value becomes your **adjusted cost base** (ACB) in the shares. Any change after vesting is a capital gain or loss when you sell. ## Worked example: an RSU vest A developer in B.C. earning $150,000 has $40,000 of RSUs vest in 2026. Her income tax rises by about $16,525 (Kosh estimate), roughly 41.3% of the vest. Employers usually withhold by selling some of the shares at a flat rate, and that rate can be below your marginal rate. Whatever the gap, it shows up as a balance owing in April. ## How are employee stock options taxed? With employee stock options, nothing is taxed at grant. When you exercise, the **benefit** (share value at exercise minus your exercise price) is employment income. If the options qualify, you can claim the **employee stock option deduction** of one-half of the benefit, so the benefit is effectively taxed like a capital gain. - **Canadian-controlled private corporations (CCPCs)**: the benefit is generally deferred until you sell the shares rather than taxed at exercise. - **The $200,000 limit**: for options granted on or after July 1, 2021 by employers that aren't CCPCs and have group revenue over $500 million, only $200,000 of options (valued at grant) that first vest in a year can qualify for the deduction. Your employer must tell you in writing which options are over the limit. ## What happens when I sell the shares? When you sell, the gain or loss is the sale price minus your ACB (the value already taxed as income), worked out in Canadian dollars if the shares trade in US dollars. Half of a gain is taxable. Selling RSU shares right at vest usually produces little or no gain. Identical shares are averaged, so every vest changes your ACB; keep a record. ## US shares, Form T1135 and currency RSUs from a US parent company are often held in a US brokerage account. If the total cost of your specified foreign property, including those shares, is more than $100,000 at any time in the year, you must file Form T1135. Currency moves change your Canadian-dollar gain even if the US-dollar share price doesn't move. ## Ways to manage the tax - **Use RRSP room** to offset a large vest: the deduction saves tax at your marginal rate. - **Set aside the shortfall** between your employer's withholding and your marginal rate after every vest. - **Decide on concentration deliberately.** Keeping vested shares is an investment decision like any other; selling at vest doesn't cost extra tax if the price hasn't moved. - **Use capital losses** from other holdings to offset gains when you sell. - **Get professional advice** for CCPC options, a liquidity event or a move abroad. [Free tool**Income tax calculator**Work out your 2026 federal and provincial income tax, CPP and EI, and what you keep, in any province or territory. Add self-employment income, capital gains and RRSP contributions to see how each one changes the bill.](/tools/income-tax-calculator)[Free tool**Capital gains tax calculator**Enter what you sold something for, what you paid and your other income to see the tax on the gain in your province. Half of a capital gain is taxable.](/tools/capital-gains-tax-calculator)[Free tool**RRSP tax refund calculator**Find out how much tax an RRSP contribution saves you this year, and what it really costs once the refund comes back.](/tools/rrsp-calculator)[Free tool**Marginal tax rate calculator**See how much of your next dollar goes to tax in your province, on salary and interest, capital gains and dividends. It's the number that decides what an RRSP contribution saves and what a raise is worth.](/tools/marginal-tax-rate-calculator) **Where Kosh fits** Kosh reads your pay stubs and brokerage statements, tracks each vest's value and cost base, estimates the gap between withholding and your actual marginal rate, and shows how much RRSP room would close it. It doesn't tell you whether to hold or sell your employer's shares. ## Frequently asked questions How are RSUs taxed in Canada? The fair market value of the shares when they vest is employment income, taxed at your marginal rate. That value becomes your cost base; any later gain or loss when you sell is a capital gain or loss, half of which is taxable. Why do I owe tax after my RSUs vested? Employers often withhold on RSUs at a flat rate that can be lower than your combined marginal rate, especially at higher incomes. The shortfall shows up as a balance owing when you file. What is the employee stock option deduction? A deduction of one-half of the stock option benefit for qualifying options, which means the benefit is taxed at the same effective rate as a capital gain. What is the $200,000 stock option limit? For options granted on or after July 1, 2021 by employers that aren't CCPCs and have group revenue over $500 million, only $200,000 of options first vesting in a year, valued at grant, can qualify for the 50% deduction. Do I need to file a T1135 for my RSUs? If the total cost of your specified foreign property, which can include shares held in a US brokerage account, is more than $100,000 at any time in the year, yes. ## Sources - [CRA: Employee security options](https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/benefits-allowances/security-options.html) - [CRA: Guide T4037, Capital Gains](https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4037/capital-gains.html) - [CRA: Questions and answers about Form T1135](https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/information-been-moved/foreign-reporting/questions-answers-about-form-t1135.html) - [Finance Canada: Capital gains inclusion rate announcement (January 2025)](https://www.canada.ca/en/department-finance/news/2025/01/government-of-canada-announces-deferral-in-implementation-of-change-to-capital-gains-inclusion-rate.html) Written by the Kosh team and checked against the rules in force on October 31, 2026. This guide is general information, not tax, legal or investment advice. Kosh is an educational financial planning tool by Primedepth Labs. It is not registered with any Canadian securities regulator as an adviser or dealer, does not recommend specific securities, and does not hold your money or execute trades. Tax figures are estimates; confirm with the CRA or a qualified professional before acting. Investing carries risk. ## Upload your statement and Kosh does this for you. Kosh reads your bank, card and investment statements, estimates your federal and provincial tax and turns guides like this one into your own numbers and next steps. [Start free](/signup?via=learn-stock-options-and-rsu-tax-canada)