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[OP]
Newbie
Jan 14, 2020
21 posts
15 upvotes

RSU and capital gain

Hi,

I debated whether it will be more appropriate to post this in investing, so if this is not the right forum, please feel free to move it. Now to my question.. I work for a US based company. I get RSU grants on an annual basis with vesting at equal 1/4 chunks across 4 years. The platform used to manage this is eTrade. I understand at vest, difference between grant and FMV is taxed as income. FMV is used to calculate the cost basis. Capital gain/loss is on delta between Sale price and FMV at time of grant.

In eTrade, it keep track of the cost basis separately for each block of vested RSU I have been granted and I have option to specify which block to sell. With respect to capital gain calculation, can I use cost basis of the block or do I need to calculate the ACB for all vested to date together?

Simple example:
  • 6/30/2019 - Vest 100 shares @ $10 (ACB/Shares = $10)
  • 7/1/2020 - Vest 100 shares @ $15 (ACB/Shares = $12.50)
  • 7/5/2020 - Sell 50 shares @ $15
  • Assuming I pick the 7/1/2020 block to sell on eTrade, will my 7/5/2020 sell result in cap gain of (A) $0 or (B) $125 (50x$15 - 50x$12.5)?
14 replies
Sr. Member
Feb 2, 2007
942 posts
858 upvotes
GTA
craziidealz wrote: In eTrade, it keep track of the cost basis separately for each block of vested RSU I have been granted and I have option to specify which block to sell. With respect to capital gain calculation, can I use cost basis of the block or do I need to calculate the ACB for all vested to date together?
Selling specific lots is a feature of the US tax code.

As a Canadian, you have to calculate the average cost across all the lots.
[OP]
Newbie
Jan 14, 2020
21 posts
15 upvotes
adrian2 wrote: Selling specific lots is a feature of the US tax code.

As a Canadian, you have to calculate the average cost across all the lots.
Thank you for the prompt response. I was hoping to hear otherwise but I suspect this was the case. Disappointed But Relieved Face

I also notice in eTrade, for each lot, they further categorize cap gain as short vs long term. Can I assume this is also a feature of the US tax code?
Sr. Member
Feb 2, 2007
942 posts
858 upvotes
GTA
craziidealz wrote: I also notice in eTrade, for each lot, they further categorize cap gain as short vs long term. Can I assume this is also a feature of the US tax code?
Correct.

BTW, you should ignore altogether the capital gains calculated by eTrade and do your calculations based on the daily exchange rate when the shares vest, as well as when you decide to sell them. You cannot just take the gain in USD as shown by eTrade and multiply by the current forex.
[OP]
Newbie
Jan 14, 2020
21 posts
15 upvotes
adrian2 wrote: BTW, you should ignore altogether the capital gains calculated by eTrade and do your calculations based on the daily exchange rate when the shares vest, as well as when you decide to sell them. You cannot just take the gain in USD as shown by eTrade and multiply by the current forex.
Thanks for heads up. I use adjustedcostbasis.ca to keep track, it has option to pull up the daily fx rate so that's one less thing to hunt down.

Couple of follow up questions, I believe I have the answers already but bouncing them off here for confirmation:
  1. For sell to cover, vest(FMV) and sell price differs slightly as sell occurs the following day. I assume I do not need to treat this delta as capital gain/loss as everything will be taken care of in my T4?
  2. I have both RSU and ESPP, in eTrade they are treated separately. Beyond calculate average cost across all lots, I should also extend calculation of average cost across all accounts?
Sr. Member
Feb 2, 2007
942 posts
858 upvotes
GTA
craziidealz wrote: Couple of follow up questions, I believe I have the answers already but bouncing them off here for confirmation:
  1. For sell to cover, vest(FMV) and sell price differs slightly as sell occurs the following day. I assume I do not need to treat this delta as capital gain/loss as everything will be taken care of in my T4?
  2. I have both RSU and ESPP, in eTrade they are treated separately. Beyond calculate average cost across all lots, I should also extend calculation of average cost across all accounts?
1. I just helped a friend do his 2020 taxes and a very similar situation occurred. As per my advice, he did report a very small loss principally due to forex daily variations, but also sale commission and check handling charge to get his money in the mail

2. Yes, one stock = one average cost base across all accounts. In his case, again at my advice, he sells all his ESPP as soon as he gets it, and the same for the RSU, so it's a moot point as it happens at different times through the year.
[OP]
Newbie
Jan 14, 2020
21 posts
15 upvotes
adrian2 wrote: 1. I just helped a friend do his 2020 taxes and a very similar situation occurred. As per my advice, he did report a very small loss principally due to forex daily variations, but also sale commission and check handling charge to get his money in the mail

2. Yes, one stock = one average cost base across all accounts. In his case, again at my advice, he sells all his ESPP as soon as he gets it, and the same for the RSU, so it's a moot point as it happens at different times through the year.
Thanks for confirming #2.

Following up on #1, my understanding is sale to cover should not trigger any capital gain/loss. My understanding is mainly influenced by exchanges in separate thread: taxes-acb-calculation-rsus-2279146/#p30818494

Is your opinion that I should factor them as part of my ACB? Or do you mean I can expense the fx fluctuation? eTrade doesn't charge commission for selling, they do however charge wire fees.
Sr. Member
Feb 2, 2007
942 posts
858 upvotes
GTA
craziidealz wrote: Is your opinion that I should factor them as part of my ACB? Or do you mean I can expense the fx fluctuation? eTrade doesn't charge commission for selling, they do however charge wire fees.
Say your vested RSU lot was 100 shares, out of which they force a sale of 53 shares leaving 47 shares available to you.
Technically, there are three transactions:
1. the award of 100 shares, the full CAD amount should appear on your T4 slip / payslip.
2. the forced sale of 53 shares, which ends up from eTrade to CRA, and gets reflected in your payslip / T4.
3. the sale that you control, at best a day later for the 47 shares you control.

The T4 numbers are what they are, in CAD, you cannot change anything.
Transaction #2, I would ignore in terms of capital gain or loss.
For transaction #3, the ACB is 47/100 x the CAD cost from your payslip, proceeds of disposition are sell price x 47 x daily forex, while outlays and expenses are the wire costs (e.g. US$20 x forex). The gain/loss should be a pretty small amount if sold next day.
[OP]
Newbie
Jan 14, 2020
21 posts
15 upvotes
adrian2 wrote: Say your vested RSU lot was 100 shares, out of which they force a sale of 53 shares leaving 47 shares available to you.
Technically, there are three transactions:
1. the award of 100 shares, the full CAD amount should appear on your T4 slip / payslip.
2. the forced sale of 53 shares, which ends up from eTrade to CRA, and gets reflected in your payslip / T4.
3. the sale that you control, at best a day later for the 47 shares you control.

The T4 numbers are what they are, in CAD, you cannot change anything.
Transaction #2, I would ignore in terms of capital gain or loss.
For transaction #3, the ACB is 47/100 x the CAD cost from your payslip, proceeds of disposition are sell price x 47 x daily forex, while outlays and expenses are the wire costs (e.g. US$20 x forex). The gain/loss should be a pretty small amount if sold next day.
For some reason I never got your reply notification.

Thanks for breaking down and laying out with a concrete example. I now understand where we got our wires crossed.

My question was on transaction #2 which is the forced sell (sell to cover) triggered by eTrade. You have confirmed my understanding that this will get reflected in my T4. Just digging into the mechanics further, there will be a small delta between vest FMV vs eTrade force sell price. Do you know how it gets reconciled in T4?

For #3, right so irrespective whether I manually trigger the sale next day of vest or 1 year later, it should follow the same calculation for cap gain/loss. I didn't realize I can expense the wire costs. How does fx fluctuation and wire cost get reflected? Increase to ACB? Straight investment expense?
Sr. Member
Feb 2, 2007
942 posts
858 upvotes
GTA
craziidealz wrote: My question was on transaction #2 which is the forced sell (sell to cover) triggered by eTrade. You have confirmed my understanding that this will get reflected in my T4. Just digging into the mechanics further, there will be a small delta between vest FMV vs eTrade force sell price. Do you know how it gets reconciled in T4?
Again, I would just ignore the "small delta"; you're welcome to be more detailed and report another line of capital gain/loss
using 53/100 of the CAD cost from your payslip as the ACB, and proceeds of disposition = the USD value reported by eTrade x daily forex. It should be pretty small.
craziidealz wrote: For #3, right so irrespective whether I manually trigger the sale next day of vest or 1 year later, it should follow the same calculation for cap gain/loss. I didn't realize I can expense the wire costs. How does fx fluctuation and wire cost get reflected? Increase to ACB? Straight investment expense?
I don't break down separately fx fluctuation out of the capital gain/loss; in theory you could do it, but for me it's an unnecessary complication. As for wire cost, just enter it as "outlays and expenses" on the gain/loss line, as it relates to getting the money from the sell transaction into your own hands.
[OP]
Newbie
Jan 14, 2020
21 posts
15 upvotes
adrian2 wrote: Again, I would just ignore the "small delta"; you're welcome to be more detailed and report another line of capital gain/loss
using 53/100 of the CAD cost from your payslip as the ACB, and proceeds of disposition = the USD value reported by eTrade x daily forex. It should be pretty small.
Circling back on this... If I have existing holding of identical shares at time of vest of these new RSU, wouldn't I need to factor in my existing ACB when calculating the CG? And if my existing ACB/share is lower than the new vest and sold price, then wouldn't I be faced with a large tax bill?

I did find an article that touched on this, but it's for stock options. https://nesbittburns.bmo.com/pictures/a ... P_1016.pdf

I am pasting relevant section below:

"However, where an employee already owns other shares of the (employer) company, the ACB of all (identical) shares will be averaged amongst the total shares held. Alternatively, where stock options are exercised and the optioned shares are sold immediately, or within 30 days of exercise (and no other identical shares are acquired or disposed during this period), the ACB of the optioned shares sold will not be averaged and can be isolated to that specific sale (of the newly-optioned shares) to prevent the recognition of any accrued gain or loss on the existing shares held. A similar rule will apply to isolate the employee’s tax cost base of CCPC shares acquired pursuant to a stock option exercise, even when the shares are not disposed of within 30 days of acquisition."

This is for stock options, I am not sure if it applies to RSU or ESPP.
Sr. Member
Feb 2, 2007
942 posts
858 upvotes
GTA
craziidealz wrote: Circling back on this... If I have existing holding of identical shares at time of vest of these new RSU, wouldn't I need to factor in my existing ACB when calculating the CG? And if my existing ACB/share is lower than the new vest and sold price, then wouldn't I be faced with a large tax bill?
Correct on all counts.
[OP]
Newbie
Jan 14, 2020
21 posts
15 upvotes
adrian2 wrote: Correct on all counts.
Upon further reading, it would appear CRA allow securities to be treated as non-identical if acquired under an employee option agreement and disposed of within 30 days. This implies that for shares that are sell to cover, the ACB can be calculated in isolation and not mixed with ACB of existing shares. Link here: https://www.canada.ca/en/revenue-agency ... 030%20days

Do you know if this also extend to RSU/ESPP? CRA literature mentioned of only stock options.

If definition of non-identical also extend to RSU/ESPP sold within 30 days of vest, and assuming I also separately sold some existing holdings of my company shares that vested previously, does this mean I can record separate line items in schedule 3 for the same stock?
  1. RSU/ESPP from Sell to cover. Capital G/L to be calculated on the FMV isolated to the RSU/ESPP lot minus Sold price(factoring in exchange rate)
  2. Separate line item for previously vested company shares. Capital G/L based on the avg ACB of all shares held across all accounts.
Sr. Member
Feb 2, 2007
942 posts
858 upvotes
GTA
craziidealz wrote: Upon further reading, it would appear CRA allow securities to be treated as non-identical if acquired under an employee option agreement and disposed of within 30 days. This implies that for shares that are sell to cover, the ACB can be calculated in isolation and not mixed with ACB of existing shares. Link here: https://www.canada.ca/en/revenue-agency ... 030%20days

Do you know if this also extend to RSU/ESPP? CRA literature mentioned of only stock options.
Reading the official link above, it seems to me the language is clear enough that it applies only to options.
Neither RSU's nor ESPP are options.

Other quick thoughts:
1. Generally, it's not prudent to have much of your investment portfolio in the same stock where your career is. The theory is that if the company starts to skid you risk losing your job and your wealth, not a good thing.
2. It may be a good idea to simplify your tax reporting: sell all non-registered holdings in the company, and then, if you really want to continue to be invested, buy in your RRSP / TFSA / RESP / CCPC / spouse account:
- if you realize a (small-ish) loss, be aware of the superficial loss rules and for now ignore the loss (if bought in a CCPC or spouse account, the loss increases the cost base there), or
- if you realize a gain, pay the tax on it and enjoy future gains encumbering subsequent RSU's and ESPP.
Once you run out of room in the other accounts you should really reconsider the exposure you want to that one stock. :twisted:
[OP]
Newbie
Jan 14, 2020
21 posts
15 upvotes
adrian2 wrote: Reading the official link above, it seems to me the language is clear enough that it applies only to options.
Neither RSU's nor ESPP are options.

Other quick thoughts:
1. Generally, it's not prudent to have much of your investment portfolio in the same stock where your career is. The theory is that if the company starts to skid you risk losing your job and your wealth, not a good thing.
2. It may be a good idea to simplify your tax reporting: sell all non-registered holdings in the company, and then, if you really want to continue to be invested, buy in your RRSP / TFSA / RESP / CCPC / spouse account:
- if you realize a (small-ish) loss, be aware of the superficial loss rules and for now ignore the loss (if bought in a CCPC or spouse account, the loss increases the cost base there), or
- if you realize a gain, pay the tax on it and enjoy future gains encumbering subsequent RSU's and ESPP.
Once you run out of room in the other accounts you should really reconsider the exposure you want to that one stock. :twisted:
Agreed on #1, from risk management perspective, it's definitely not prudent to be overweight with company stock. In general, I try to keep it under 10% of portfolio.
For #2, unfortunately selling now will incur a very large tax bill. I am stlil very confident in my company, so will just suck it up and deal with the tax reporting for now.

I have since reached out to CRA and they agreed with my interpretation, namely:
  1. RSU/ESPP are covered under the employee option agreement.
  2. At vest, as long as you sold within 30 days, you can declare them to be not identical to existing shares you already hold. So ACB averaging rule will not apply, instead you can calculate ACB in isolation.
  3. This avoid the situation of realizing large CG if your existing shares ACB is much lower than newly vested option shares.
So the answer is yes to both my previous questions. Hopefully someone stumbling into this thread will find this useful.

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