RSUs in Canada: how to avoid a surprise tax bill

Restricted stock units feel like a bonus that shows up in your brokerage account. The CRA sees something simpler: salary. And because of how it's taxed, a lot of people get a nasty surprise the following April.

How RSUs are taxed

When your RSUs vest, the full market value of the shares that day is treated as employment income — exactly like salary. It's added to your T4 and taxed at your marginal rate. There's no special "capital gains" treatment at vest; that only applies later, to any gain (or loss) on shares you keep after vesting.

So a vest of $80,000 of stock adds $80,000 to your income for the year. If you're already a high earner, much of it is taxed at the top marginal rate — often 45–54% depending on your province.

Why withholding usually isn't enough

Most employers handle the tax by selling a portion of the shares to cover it ("sell-to-cover") — but they frequently withhold at a flat supplemental rate that's lower than your actual marginal rate. If they withhold ~30% and your real rate is ~50%, you're quietly short roughly 20% of the vest. Multiply that across a year of vesting and the shortfall can be five figures — payable when you file. The shares looked like a windfall; the tax bill arrives months later.

The other trap: concentration

Once RSUs vest, holding the shares is an active decision — you're choosing to keep a concentrated bet on a single company (often the same one paying your salary, so your job and your savings rise and fall together). The default of "just let them pile up" is how people end up with half their net worth in one stock.

A simple plan

• Sell at (or near) vest by default. Since it's already taxed as income, selling immediately usually has little or no extra tax — and it removes the concentration risk. Keeping the shares should be a deliberate choice, not autopilot.
• Set aside for the top-up. Estimate your real marginal rate, compare it to what payroll withheld, and park the difference so April isn't a shock.
• Reinvest into a diversified plan — and use your RRSP/TFSA room along the way.
• Mind cross-border wrinkles if you hold US-listed shares or have US tax exposure; the reporting (and timing) gets more involved.

None of this is exotic — it's just easy to miss when the shares feel like free money. A little planning around each vest turns RSUs from a tax landmine into what they should be: a real step forward.

General information for Canadians, not individual tax advice. RSU plans and tax rules vary; confirm the specifics of your grant and situation with a qualified advisor.