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My (Canadian) company is about to be sold and as one of the first employees I'm expecting a significant payout from options (e.g. $2M !).

That sounds like an incredible amount of money, but this is Vancouver — land of the $1M crack house. After grad school, student loans and >10 years of startups, I have no pension, and no house.

Assuming I was to pay tax at regular income tax rates, I would have about half of this left, enough to buy a house or a pension, but not both.

Is there anything I can do to reduce tax? Do I just leave Canada? (I also have E.U. citizenship). Can I just become non-resident for the year?

I don't mind paying tax on the income the money would bring, but to lose 50%, then pay 40% tax on the income from an annuity, and still not have a house seems a bit much.

  • I know the answer is "get a good accountant" but I just wondered what all the silicon valley types on S.O. did.
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    What makes you think leaving Canada is going to have any effect? By the way, don't know if you know that, but Silicon Valley is in California, US. Also abbreviated as "CA", but it is not the same country and tax laws are also not the same. – littleadv Nov 25 '14 at 5:28
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    I can't answer about Canada, but in the US, there are some ways to avoid ordinary income tax (which is also ~50% for a high income California resident). Some companies offer ISOs, the sale of which is taxed as long-term capital gains if they are held sufficiently long. Then by investing with a buy-and-hold strategy, and with a few tricks like tax-loss harvesting, most investment income will be taxed at the long-term capital gains rate. 401ks/IRAs also help avoid repeated taxation on a portion of your wealth. – Daniel Lubarov Nov 25 '14 at 5:47
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    @Daniel in the US the main way to avoid ordinary income rates on startup appreciation is using 83(b) election. – littleadv Nov 25 '14 at 6:34
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    Considering the amount, finding a good tax advisor would be a great investment. – assylias Nov 25 '14 at 13:50
  • They say if you hire a good CPA then you shouldn't have to pay anything through 'accounting magic'...But seriously, don't be squirrelly. Pay your taxes. You'll sleep better knowing you did the right thing. – Frank Tudor Nov 25 '14 at 17:58
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Consult a qualified tax professional.

I trust that's what the "silicon valley types" did ... at least those who still have most of their money left. When you speak to a professional, I would expect a couple of things you'd be made aware of about such a situation in Canada are:

  1. You might qualify for a lifetime capital gains exemption. If you are selling shares in a Canadian Controlled Private Corporation (CCPC), then your first $750K of gains may be tax free. Tax free. Did you know about the $750,000 Lifetime Capital Gains Exemption (PDF)? Read up. Conditions apply.

  2. Generally, capital gains income in Canada isn't taxed at the regular income tax rate. Rather, only 50% of realized gains are taxed. That is, the tax on the part over the exemption amount (should you qualify) would at worst be only half what you assumed.

You don't know what you don't know, so before you jump to any conclusions about how much you are likely to owe or else start making plans to leave the country, please consult a professional (or three). Do this soon, before the transaction completes, because sometimes you need some time to structure things in the best way.

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