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.
** Edited original post for clarity (changed grant value to vest value) **
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.
** 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.