Personal Finance

Taxes: ACB calculation for RSUs

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  • Apr 17th, 2019 1:13 am
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Newbie
Aug 24, 2006
11 posts
Toronto

Taxes: ACB calculation for RSUs

For all of the tax gurus out there

How should ACB be computed for RSUs where only a portion of vested shares are sold to cover withholding taxes. Specifically, do you add only the net vested shares (after accounting for any shares sold to pay taxes) for the purpose of ACB or do you treat the original vested shares as a “Buy” at the vest price and the shares sold for taxes as a “Sell” at the sale price. One can end up with very different ACBs and capital gains for the 2 cases depending on the difference between vest price and sell price.

Here’s an example (exaggerated to illustrate the point)

Assume you have an opening balance of 1000 shares with ACB of $6. You then have 1000 RSUs vest with a vesting value of $10/share. Assume that the tax rate is 25% which results in a tax withholding of $2500. However when shares are sold for taxes, the sale price has changed to $5, so 500 shares are sold to cover taxes. Subsequently you then sell all of your shares at $8.50. When the vest and tax withholding event are treated as “Buy” and “Sell” transactions, one ends up with a net loss of $1500. However, if you only use the net vested shares for ACB, then you end up with a gain of $562.5. If the RSU vest event and the final sale are in different years, then this also impacts when the gain (or loss) is recognized.

What is the correct approach? (I can't add a table to the post so attached a picture of the calculations for the 2 scenarios)

Thanks in advance for any guidance.
screenshot.png
** Edited original post for clarity (changed grant value to vest value) **
Last edited by cad2usd on Apr 17th, 2019 1:08 am, edited 1 time in total.
3 replies
Jr. Member
User avatar
Jan 23, 2019
107 posts
160 upvotes
Black site, Canada
Check with your employer to confirm, but the withheld shares are likely not actually ever granted to you and "sold", they are just withheld at the source (the company, your employer).

In that case if you are given 10 shares on April 1st, but they withhold 4 for taxes leaving you with net +6, only those 6 factor into ACB calculations. If not, the "sale" of the 4 shares would be a taxable event based on all the prior ACB of any holdings not sold ... and I'm betting there are approximately zero people who are calculating it that way :)
Last edited by RaymondReddington on Apr 17th, 2019 12:44 am, edited 2 times in total.
Jr. Member
User avatar
Jan 23, 2019
107 posts
160 upvotes
Black site, Canada
cad2usd wrote: You then have 1000 RSUs vest with a grant value of $10/share. Due to a tax rate of 25% this results in a tax withholding of $2500. However when shares are sold for taxes, the sale price has changed to $5, so 500 shares are sold to cover taxes.
What are you using here for the $10? "grant value" is what precisely? For RSUs, there's no taxable event when they are granted. The taxable event happens as they vest, which should be identical to the price they are "sold" at for withholding taxes because they are not actually "sold" but just withheld and the price the company uses for the "sale" is the same price they use for the calculation of what your tax liability is on the net vested amount (e.g. the price on the close of the vest date).

So grant date / grant price is irrelevant, and the only price factoring in is the price on the vest date. This is usually referred to as the Fair Market Value (FMV).
Newbie
Aug 24, 2006
11 posts
Toronto
I should have said vest FMV, so the $10/share refers to the FMV at vest. I've edited the post for clarity. Shares do get sold on a vest event and the proceeds are used to pay the taxes owing (this gets reported on the T4). Typically the sell date is the day after vest, so the vest price and sale price can be different (and my RSU statements reflect this).

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