# Stock/ESSP Treatment



## saanweyn2k2 (Feb 23, 2011)

Hi,

I had great help already with what to do with my rrsp contribution room and hoping the same with maximizing my tax returns as I'm in process of finishing my returns, and am curious as the treatment of stock options + essp. Here is my situation.

My company (public/us based company) allows us to deduct money from my salary every paycheck with intention of buying stock twice a year. I participated in this last year, and I made gains of approx $4000 (at the time of the purchase of these stocks). I also got upon joining the company some RSU that vest with time. Some of my RSU stock vested this past year as well. So in terms of gains

-approx $4000 in ESSP gains
-approx $1000 in vested stock (of the vested stock, I only got portion of it, and the other portion was withheld to pay tax)
-I have not sold any of these stocks and the gains are in paper ONLY.

In my T4 these show up as income in BOX 38.

My question is that I'm paying regular taxes on this income, although I have not realized the gain? Seems bit unfair given that I would be forced to sell some of it to pay taxes. Is there anyway I can defer this income to future period?


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## Rysto (Nov 22, 2010)

Are you getting a discount or employer match on the ESPP? Any contributions by the employer count as normal income in the year in which you purchase the shares. Any gains from that point on are capital gains, and are only taxed when you realize the gain(=sell).

The stock options won't count towards as income until you exercise them. When you exercise them, the difference between the amount that you pay for them and the fair market value counts as taxable income in the year that you exercise the option, *even if you don't sell the shares*. The income counting in the year that you exercise is a new rule in response to JDS Uniphase and Nortel employees who screwed themselves by exercising but not selling right away.


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## Rysto (Nov 22, 2010)

Oh, but you said Restricted Stock Units, not options. According to this blog post by CC, Restricted stock awards(RSAs) are taxed when they are granted, which makes sense. RSUs aren't supposed to be taxed on grant according to CC. Are you sure that you didn't receive RSAs, not RSUs?


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## saanweyn2k2 (Feb 23, 2011)

Rysto thanks for the reply.

There are two separate items. RSU is separate from the essp stock purchase option. RSU it seems was taxed because only a certain amount of the stocks granted were released to me. In my trading account it even says taxed paid = $amount. Not sure how this is reflected in my t4 because there is no mention of this tax payment.

As for the ESSP yes I believe those were the gains or the portion covered by employer. I believe this is the difference between the price I paid for the stock and the price of the stock on the purchase date.

From your description it would seem I would have to pay the taxes on this amount this past year irregardless of when I sell.


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## MikeT (Feb 16, 2010)

I can only speak from experience doing this on my us tax return when I was resident there. It may be the same in Canada although I don't know for sure.

The discount that your ESPP gives you on the stock is considered compensation for the tax year the stocks are purchased. The amount will be included on your W2 as wages and you pay tax on the amount as income. There is no way around it, just as there is no way around taxes on your regular salary.

However your cost basis becomes the fair market value on the day of the purchase. i.e. If you sell them immediately, there will be no capital gain at all.


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