Personal Finance

Calculate tax from Employee Stock Purchase plan

  • Last Updated:
  • Sep 7th, 2021 10:23 pm
Newbie
Sep 2, 2017
41 posts
28 upvotes

Calculate tax from Employee Stock Purchase plan

My workplace has an Employee Stock Purchase Plan (ESPP) where we get a 15% discount off the stock price. The company stock is listed on NYSE. My salary in $CAD is converted to $USD first, then stock purchased at 15% discount. I sell all of it within a month, and then convert from $USD back to $CAD.

I'm confused as to how I would calculate capital gains. My understanding:
  1. The 15% discount is already reported as "income" on my pay-stub twice a year on each of the purchase dates.
  2. Any other gains excluding the discount is actual capital gains or losses.

How do I factor in the difference in exchange rate of purchase date CAD to USD versus when I convert back from USD to CAD?
How would I calculate the capital gains excluding what is already declared in pay stub?


Using rough numbers:
I contributed $6000 towards ESPP. After converting my sold shares back to $CAD, I deposited $7100 at the bank. So I made $1100. On my pay stub, there's additional benefits income from ESPP reported as $1500.
So that means the government currently thinks I have made $1500 plus any unreported capital gains. But really I made $1100. How do I report the difference? Should I report $400 in capital loss?
Last edited by splatapus on Feb 23rd, 2019 12:39 pm, edited 2 times in total.
20 replies
Deal Addict
Apr 27, 2015
3051 posts
1745 upvotes
Mississauga
Don't you get T4PS? My wife also has ESPP with 50% discount and I just fill out T4PS form.
T4PS slips show allocation and payment of dividend and capital gain income from Employee Profit Sharing Plans.
"All animals are equal but some animals are more equal than others" George Orwell
Newbie
Sep 2, 2017
41 posts
28 upvotes
gibor365365 wrote: Don't you get T4PS? My wife also has ESPP with 50% discount and I just fill out T4PS form.
No T4PS for me. My employer reports discount onto T4 as taxable benefits, box 38.

Anyways I got my answer by calling in to CRA. On T4 employer reported ~$1500 $CAD of benefit income from ESPP. However when I do my proceeds in $CAD minus my ACB in $CAD, the amount was $1100. Which is the actual amount I made off this program.
So the $400 difference I can declare as capital loss. As I was really taxed "extra", I never received $1500, only $1100.
I explained to the CRA rep that this was due to exchange rate difference on date of purchase vs. date when I sold, unlucky for me. Question solved.
Deal Fanatic
User avatar
Jan 6, 2002
6834 posts
7575 upvotes
Toronto
splatapus wrote: I explained to the CRA rep that this was due to exchange rate difference on date of purchase vs. date when I sold, unlucky for me. Question solved.
Currency conversions losses (and gains) are taxation/investment factors as well,. Not just "unlucky you" -- it should be tracked as such and claimed.
Si Tacuisses, Philosophus Mansisses
Deal Addict
Jul 3, 2017
3859 posts
2814 upvotes
Any money your employer contributes towards share purchase, or any direct discount they give from market value, is a taxable benefit and goes directly onto your income.

Subsequently you own the stock and report capital gains/losses from date of purchase just as you would on any stock.

If you need to convert US$ <-> Cdn$, you use the Bank of Canada rate, or produce receipts for actual converted value.
Deal Addict
Feb 21, 2004
1584 posts
378 upvotes
Montreal
Pretty much what Exp315 above here said.

You're luck to be able to sell it right away though. The US Company I work for forces a withholding period of 18 months before being allowed to sell them despite me being a Canadian. annoying
Sr. Member
Aug 20, 2015
517 posts
307 upvotes
Toronto
splatapus wrote: No T4PS for me. My employer reports discount onto T4 as taxable benefits, box 38.

Anyways I got my answer by calling in to CRA. On T4 employer reported ~$1500 $CAD of benefit income from ESPP. However when I do my proceeds in $CAD minus my ACB in $CAD, the amount was $1100. Which is the actual amount I made off this program.
So the $400 difference I can declare as capital loss. As I was really taxed "extra", I never received $1500, only $1100.
I explained to the CRA rep that this was due to exchange rate difference on date of purchase vs. date when I sold, unlucky for me. Question solved.
I do it this way as well, I claim $7500 in ACB and $7100 in proceeds for a $400 capital loss. I'm glad to hear the CRA confirmed it's correct.
Newbie
Dec 10, 2007
37 posts
11 upvotes
Montreal
splatapus wrote: No T4PS for me. My employer reports discount onto T4 as taxable benefits, box 38.

Anyways I got my answer by calling in to CRA. On T4 employer reported ~$1500 $CAD of benefit income from ESPP. However when I do my proceeds in $CAD minus my ACB in $CAD, the amount was $1100. Which is the actual amount I made off this program.
So the $400 difference I can declare as capital loss. As I was really taxed "extra", I never received $1500, only $1100.
I explained to the CRA rep that this was due to exchange rate difference on date of purchase vs. date when I sold, unlucky for me. Question solved.
In a similar situation - how did you wind up entering the info on your return? Schedule 3? Did you have to make an adjustment to your T4? Thanks!
Newbie
Sep 2, 2017
41 posts
28 upvotes
cocobeeg wrote: In a similar situation - how did you wind up entering the info on your return? Schedule 3? Did you have to make an adjustment to your T4? Thanks!
I entered as Capital Loss on Schedule 3.

No adjustment to T4. Once the company has bought the stock for you, the difference between what you put in versus what the stock is worth on that day is your income that gets reported on T4. Whatever happens after this point (foreign exchange losses, stock goes up/down) is all capital gains/loss, so has nothing to do with T4 anymore.

That's my understanding.
Jr. Member
User avatar
Jan 23, 2019
107 posts
160 upvotes
Black site, Canada
splatapus wrote: I contributed $6000 towards ESPP. After converting my sold shares back to $CAD, I deposited $7100 at the bank. So I made $1100. On my pay stub, there's additional benefits income from ESPP reported as $1500.
So that means the government currently thinks I have made $1500 plus any unreported capital gains. But really I made $1100. How do I report the difference? Should I report $400 in capital loss?
splatapus wrote: No T4PS for me. My employer reports discount onto T4 as taxable benefits, box 38.

Anyways I got my answer by calling in to CRA. On T4 employer reported ~$1500 $CAD of benefit income from ESPP. However when I do my proceeds in $CAD minus my ACB in $CAD, the amount was $1100. Which is the actual amount I made off this program.
So the $400 difference I can declare as capital loss. As I was really taxed "extra",
$1500 CAD was income, -$400 was capital loss (not deductible against income) ... you are saying proceeds minus ACB is $1100 ... that doesn't add up. Misphrasing something?

Proceeds minus ACB should be -$400 to be a capital loss. ACB is the FMV on the day of purchase, not the discounted price you paid.

e.g. 1 share bought for $85 (15% discount off $100 on purchase date).
1 share sold for $96

$15 taxable benefit (income0
ACB $100
$96 - $100 = -$4 capital loss
splatapus wrote: I never received $1500, only $1100.
I explained to the CRA rep that this was due to exchange rate difference on date of purchase vs. date when I sold, unlucky for me. Question solved.
no, you did receive a $1500 benefit which would have been realize if (e.g. in my example) you sold at $100 instantly
after receiving the $1500 benefit (income), you then lost $400 capital loss :)

$400 was attributable ALL to the exchange rate difference? Are you sure? That seems like a lot relative to the 15% benefit. What 2 exchange rates & dates did you use to get such a large loss only due to the exchange rate? I'd expect fluctuation in the stock price to factor the most.

Unless maybe your company reports CAD benefit based on converting the CAD to USD at really bad exchange rate some other time over the past 6-month purchase period. Do you know (or can you figure out) what rate they used to report your taxable benefit income amount -- it's possible they made a mistake there too. Or maybe you just got really unlucky with 2 dates used for exchange rates?
Newbie
Sep 2, 2017
41 posts
28 upvotes
RaymondReddington wrote: $1500 CAD was income, -$400 was capital loss (not deductible against income) ... you are saying proceeds minus ACB is $1100 ... that doesn't add up. Misphrasing something?

Proceeds minus ACB should be -$400 to be a capital loss. ACB is the FMV on the day of purchase, not the discounted price you paid.

e.g. 1 share bought for $85 (15% discount off $100 on purchase date).
1 share sold for $96

$15 taxable benefit (income0
ACB $100
$96 - $100 = -$4 capital loss



no, you did receive a $1500 benefit which would have been realize if (e.g. in my example) you sold at $100 instantly
after receiving the $1500 benefit (income), you then lost $400 capital loss :)

$400 was attributable ALL to the exchange rate difference? Are you sure? That seems like a lot relative to the 15% benefit. What 2 exchange rates & dates did you use to get such a large loss only due to the exchange rate? I'd expect fluctuation in the stock price to factor the most.

Unless maybe your company reports CAD benefit based on converting the CAD to USD at really bad exchange rate some other time over the past 6-month purchase period. Do you know (or can you figure out) what rate they used to report your taxable benefit income amount -- it's possible they made a mistake there too. Or maybe you just got really unlucky with 2 dates used for exchange rates?
Yes, you are correct. I used the word ACB wrong in my original post.
Deal Addict
Oct 17, 2012
2874 posts
3524 upvotes
Vancouver
I am in an extremely similar situation to OP. All the numbers, discounts, and countries are the same as OP's scenario. The only difference is, I don't sell as soon as possible and I have been holding company shares. I understand how capital gains and losses work, at the future date/year in which I sell.

In the previous year(s), the stock has issued dividends (well under $2 per share) and these automatically are reinvested back into the ESPP program as full and/or partial shares. Is there something I am supposed to report, regarding the dividends issued? Did not receive any slips regarding this.
Deal Addict
Nov 10, 2018
4735 posts
5331 upvotes
sunnysidesolutions wrote: I am in an extremely similar situation to OP. All the numbers, discounts, and countries are the same as OP's scenario. The only difference is, I don't sell as soon as possible and I have been holding company shares. I understand how capital gains and losses work, at the future date/year in which I sell.

In the previous year(s), the stock has issued dividends (well under $2 per share) and these automatically are reinvested back into the ESPP program as full and/or partial shares. Is there something I am supposed to report, regarding the dividends issued? Did not receive any slips regarding this.
Yes, you will have to calculate your adjusted cost base as every single time a dividend is issued it adjusts your ACB, and thus you need that info to calculate your capital gains when you sell.
For legal topics and discussions, the opinion, guidance, and thoughts provided are my own and are not considered to be legal advice, in any manner.
Deal Addict
Oct 17, 2012
2874 posts
3524 upvotes
Vancouver
angryaudifanatic wrote:

Yes, you will have to calculate your adjusted cost base as every single time a dividend is issued it adjusts your ACB, and thus you need that info to calculate your capital gains when you sell.
Oh okay, so as long as I don't sell, I don't need to report this aspect of it as the capital gain is not realized?
Deal Addict
Nov 10, 2018
4735 posts
5331 upvotes
sunnysidesolutions wrote: Oh okay, so as long as I don't sell, I don't need to report this aspect of it as the capital gain is not realized?
Yes but best to start getting on top of this asap.
For legal topics and discussions, the opinion, guidance, and thoughts provided are my own and are not considered to be legal advice, in any manner.
Deal Addict
Jun 18, 2018
1984 posts
1456 upvotes
Toronto
Exp315 wrote: Any money your employer contributes towards share purchase, or any direct discount they give from market value, is a taxable benefit and goes directly onto your income.

Subsequently you own the stock and report capital gains/losses from date of purchase just as you would on any stock.

If you need to convert US$ <-> Cdn$, you use the Bank of Canada rate, or produce receipts for actual converted value.
Similar situation as OP. For my situation, I noticed that despite stock being purchased in 2018 and then some more in the new year, that it was not reported on my T4 2018. Instead, they included the share purchase discount as a benefit in my 2019 pay slip. Is this wrong on my employer's part? FYI this also raised the amount of taxes I paid in that payslip by like $100 (both regular income tax and CPP), which of course because it is a taxable benefit.

When I asked HR this was the reply I received: Your January xth 2019 pay statement shows 15% discount taxable benefit of your Q4 2018 deductions (when I first began to purchase stock). Your Q4 deductions were Net Salary / 0.85 =$x. $x - Net Salary = the benefit amount. FYI the Net Salary is also net of my contribution to purchase the stock (of course).

@angryaudifanatic if you have any insight as well.
Deal Addict
Nov 10, 2018
4735 posts
5331 upvotes
Electrah wrote: Similar situation as OP. For my situation, I noticed that despite stock being purchased in 2018 and then some more in the new year, that it was not reported on my T4 2018. Instead, they included the share purchase discount as a benefit in my 2019 pay slip. Is this wrong on my employer's part? FYI this also raised the amount of taxes I paid in that payslip by like $100 (both regular income tax and CPP), which of course because it is a taxable benefit.

When I asked HR this was the reply I received: Your January xth 2019 pay statement shows 15% discount taxable benefit of your Q4 2018 deductions (when I first began to purchase stock). Your Q4 deductions were Net Salary / 0.85 =$x. $x - Net Salary = the benefit amount. FYI the Net Salary is also net of my contribution to purchase the stock (of course).

@angryaudifanatic if you have any insight as well.
I must be losing my mind. I thought I had replied to this one already....anyways!

1) It doesn't matter in regards to the tax year. At the end of the day, your employer pays you X, taxes you Y. It's up to the CRA to calculate what taxes you should pay, and then they'll either ask for more money or give you money back. So in regards to your 2018/2019 question, it doesn't really have an impact as the CRA will calculate each calendar year/tax year separately and reconcile amounts paid/owed.

2) Slightly off tangent, but just keep in mind your cap gains calculation will be based on the sale price when you hit sell minus the price of the stock when it was granted to you (and not the price with the 15% discount). Why? Because your employer already taxed you for the 15% discount since it was/is a taxable benefit.
For legal topics and discussions, the opinion, guidance, and thoughts provided are my own and are not considered to be legal advice, in any manner.
Deal Addict
Oct 8, 2015
4286 posts
4641 upvotes
Province of Bring Ca…
This is golden. For example, you enrolled in a company ESPP on Jan 1 2021 and the purchase was made on May 31. In my case, price will be the lower of the price on Jan 1 or May 31 with additional 15% off.

Let's say on Jan 1 my employer stock price is $100 and on May 31 it's $150, then on May 31 my company will purchase the stock for me using the money that I contributed into ESPP, at $100*.85 = $85, but the real market price is $150 (my real cost); therefore, the employer is giving me $65 (150-85)/share as taxable income, and my employer has to collect withholding tax (~40%),

If I sold all my stocks on that day, I'm actually making 65*0.6 = $39 for each share. However, if during next year's tax return my marginal tax rate doesn't reach 40% then I'll get some money back.

Okay, let's say the stock crashed and I sold my stock at $100, I still have to pay the 40% withholding tax, but then I can claim capital loss of $50 per share.
Exp315 wrote: Any money your employer contributes towards share purchase, or any direct discount they give from market value, is a taxable benefit and goes directly onto your income.

Subsequently you own the stock and report capital gains/losses from date of purchase just as you would on any stock.

If you need to convert US$ <-> Cdn$, you use the Bank of Canada rate, or produce receipts for actual converted value.
Deal Addict
Aug 19, 2002
3681 posts
1735 upvotes
Wow TIL that you're supposed to use FMV. Time to amend my 2019 taxes.

Top

Thread Information

There is currently 1 user viewing this thread. (0 members and 1 guest)