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Hello David-
My wife (Canadian citizen and resident) is no longer employed. When she left her job last June, she exercised a large number of stock options and is still holding most of the shares. She deferred the income resulting from the exercise, known in Canada as a "deferred stock option benefit," so that she won't be taxable in Canada on that income (as well as any capital gain) until she sells the shares. (Income being the difference between the cost - aka "strike price" of the option - and the price of the shares when the option was exercised.)
I am a US citizen, and immigrated to Canada as a permanent resident to live with her in December 2003.
I know I'm always obliged to file US taxes, and believe that the US does not allow deferral of income from stock option exercising. If we file Married / Joint for 2003 (or any future year), will the US insist that we recognize all of her deferred stock option benefit and thus pay income tax to the US on it this year, even though we still are holding the shares?
If no, will the US tax her deferred stock option benefit in future years when she sells the shares? Or will it just tax the capital gain on the sale, with the cost basis being the price of the shares when the option was exercised?
A very devoted fan,
NXXXXXXX
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david ingram replies:
The US will want to tax her on the stock option. Canada only started allowing the deferral a couple of years ago.
However, depending upon the amount, it might not matter because we can likely calculate some foreign tax credit on it for other taxes paid the way that the 1116 form works..
We should do all the calculations first before the tax season gets busy (and more expensive).
Otherwise, the US return will have the stock option benefit on the 2003 return with future capital losses or gains calculated when she actually sells the shares.
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