Stock Options and RSUs When You Move From Canada to the US: Sourced by Where You Worked, Not Where You Exercise

Employee equity is carved out of the deemed disposition — options are on the exempt list — because it answers to a different regime entirely: employment income sourcing. Both countries, and the treaty behind them, treat the option or RSU benefit as compensation for services, divided by where those services were performed over the earning period — as an administrative matter, generally grant to vest, measured in workdays. A Canadian granted options in Toronto who moves to California and exercises three years later does not hand the gain to either country whole: the spread is apportioned — the Toronto workdays' share is Canadian-source employment income (taxable in Canada as a non-resident, through payroll withholding, with the stock option deduction's one-half treatment where its conditions are met, subject to the post-2021 annual limits for large employers), and the California workdays' share is US-source (ordinary income, federal plus state, through US payroll). The US, taxing its new resident on worldwide income, includes the whole spread and credits the Canadian tax on the Canadian slice; California includes what its rules reach. RSUs run the same apportionment at vest, which arrives on its own schedule regardless of borders. The planning consequence is that the departure date is a sourcing fence: workdays before it accumulate Canadian source, workdays after accumulate US source, and the elections that exist — including, for options, the question of exercising before departure to crystallize purely Canadian treatment at resident rates and known deductions — get evaluated award by award, against the calendar, before the flight.

Key takeaways

• Sourcing, not situs: the benefit divides by workdays in each country from grant to vest — where you exercise, where the shares list, and where the employer is incorporated are all irrelevant to the split.
• Options — Canadian side: the spread at exercise is employment income; the Canadian-source share is taxable to a non-resident with Canadian payroll withholding; the 50% stock option deduction applies where the classic conditions hold (and within the C$200,000 annual vesting limit for non-CCPC large-employer grants after mid-2021); CCPC options keep their own deferral-to-sale timing rules.
• Options — US side: nonqualified treatment for what were Canadian grants — the full spread is ordinary income at exercise for a US resident, with foreign tax credits for the Canadian tax on the Canadian-sourced share; state tax adds its layer, and California reaches its workday share aggressively.
• RSUs: taxed at vest in both systems, apportioned by the same workday logic; dual payroll withholding at vest is normal for movers and requires the employer's payroll teams to actually implement the split — the most common operational failure in the whole area.
• Exercise-before-departure converts a future two-country apportionment into a single-country event at Canadian resident rates with the deduction — attractive when the spread is large, the options are near expiry, or US state rates are high; unattractive when it accelerates tax on volatile paper. Model per grant, not per portfolio.
• After the equity becomes shares, the ordinary rules resume: the shares' cost is the FMV taxed at exercise/vest; future gains belong to the residence country (and the departure tax, for shares held at emigration, applies to them like any other stock).

The employer conversation, again

None of the sourcing works without payroll cooperation: the Canadian entity must withhold on the Canadian-source share of a non-resident's exercise years after the move, the US payroll must withhold on its share, and the workday records that drive the split are the employee's to keep and the employer's to apply. Movers with meaningful equity should leave with a written workday summary, the grant agreements, and a named payroll contact on each side — the file that turns every future vest from a research project into arithmetic.

Worked example

A Vancouver product manager holds two awards when she transfers to Seattle on July 1, 2026: options granted January 2024 (fully vested, spread C$180,000) and RSUs granted January 2026 vesting January 2028. The options: 100% of the grant-to-vest workdays were Canadian, so the spread is entirely Canadian-source whenever she exercises — she models exercising in June before departure (BC resident rates with the 50% deduction on the qualifying portion — her employer's size puts part of the grant under the C$200,000 vesting limit regime, splitting the deduction) against exercising later from Washington (same Canadian tax via non-resident withholding, full US ordinary income with credits — but Washington adds no state tax, softening the difference). She exercises the near-expiry half in June and carries the rest. The RSUs: her grant-to-vest period will end up roughly 25% Canadian workdays and 75% US; at the January 2028 vest, Canadian payroll withholds on a quarter of the value as non-resident employment income, US payroll taxes the rest and the whole, credits reconcile the Canadian slice on her 1040, and her workday log — kept from day one — is the document both payrolls used. The shares she takes at vest have their taxed value as basis, and from there they're just stock in a Washington resident's account.

Official sources

The CRA sets out the taxation of employee security options, including that a taxable benefit arises when securities are acquired under the option, the conditions for the security options deduction, and the rules that apply to determine the benefit for employees who cross international borders during the life of the option. — Canada Revenue Agency, Security options, https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/benefits-allowances/security-options.html

Article XV of the Canada-United States Tax Convention provides that salaries, wages, and other remuneration derived by a resident of one country in respect of employment are taxable only in that country unless the employment is exercised in the other country, subject to exceptions for short stays and small amounts. — Canada-United States Tax Convention, Article XV, https://www.canada.ca/en/department-finance/programs/tax-policy/tax-treaties/country/united-states-america-convention-consolidated-1980-1983-1984-1995-1997.html

Practitioner note

Equity comp is the asset class where the departure date does the least and the calendar does the most: the sourcing fraction is built from workdays nobody can retroactively move. Our pre-departure equity review is a grant-by-grant table — spread, vesting, deduction status, expiry, both countries' rates — and it reliably produces one or two exercise-now decisions plus the artifact that matters most afterward: the workday log every future vest will be computed from.

See also: Browse every cross-border tax topic guide, organized by situation.

Next step

Fairlight prepares the equity compensation plan for the move — per-grant exercise modeling, the sourcing workday log, dual payroll coordination, and the deduction and credit computations at each future vest. See cross-border pricing or book a call.