Is there an equivalent to an 83b election in Canada?

Question

I have asked accountants and lawyers and even Revenue Canada is not sure... I live and work in Canada for a startup company in the US. They have given me a stock grant of restricted shares in the company. In the US, they would have me file an 83b election, which must be done within 30 days after the stock is granted, so the stock can be taxed at the time of the grant and treated like a capital gain. If this isn't done, then as the stock vests and goes up in value, you would have to pay the revenue as regular income, even if you don't or can't sell the stock. That could mean a large tax bill, when you have no money to pay it.

I can't seem to find an equivalent in Canada. Since I live and work in Canada and will be paying taxes here, I'll need to pay taxes on this stock to Revenue Canada. However, everything references a private Canadian corporation, but this is a US corporation (incorporated in Delaware). Ideally, I'd like to ensure this stock is treated as a capital gain and I only pay tax when I sell it. The basis would be zero, or I guess, 1/100 of a penny per share.

Also, the stock grant would leave me owning over 10% of the company, however, after expected dilution I don't think I'll own 10% for very long. I think that might matter for certain things as well.

Anyone deal with this before? Any other things to look out for?

Thanks

Answer 1

I would check with a tax specialist at a CA firm but I'll try to answer this to the best of my knowledge.

The value of the stock granted should be included in your employment income for the tax year in which it is received. The value of the shares *should* be determined by your employer and included on your T4 from the company. The value of that benefit should be the fair market value, not the par value of the shares.

Other than the above it should be treated as a capital item like any other type of shares and not taxed until sold.

I'm basing this answer on how stock options are taxed in Canada and the shares resulting from them (although Canadian Controlled Private Corporations [CCPC] and companies listed on a North American exchange get additional favourable benefits which I have not included).

So to answer the original question no I don't believe there is an equivalent to an 83b election but that's because it is not needed. I believe with a fair amount of certainty that you will NOT be taxed in a similar manner to the US (without the election), that is the increase in value will NOT be taxed as income.

Answer 2

This is a bit of a sticky situation you've got yourself in.

If this was a Canadian Company granting an option, the rules are relatively clear, but hard to explain. Given the number of professionals that you've consulted, I'm going to assume that you've probably heard the explanation before, and I won't go into it here.

If this is still a hypothetical situation, and if you are curious about the tax implications, you might want to consider getting a ruling from the CRA before you initiate the stock purchase. There is a fee involved, but the advantage is that the ruling would be provided in writing, and is binding on the CRA.

Three links:

CRA web page related to Rulings, and archives to previous public rulings:

http://www.cra-arc.gc.ca/menu/ATRA-e.htm...

CRA Information Circular IC70-6R5

http://www.cra-arc.gc.ca/E/pub/tp/ic70-6...

Knotia.ca (they archive rulings also, and do a better job of it than CRA):

https://www.knotia.ca/Login/Login.aspx?R...

Good Luck!!