December 17, 2019

How to calculate capital gains tax for an employee share purchase plan

Employee share purchase plans (ESPPs) are common, but they can be further complicated by cross-border issues. When buying company shares from a U.S. based company, you run into tax issues that are unique to U.S. companies. Often for ESPPs you are buying multiple shares over time, and you are subject to the U.S. exchange rate for each share when it was bought and not when you sell it. If your adjusted cost base exceeds $100,000 Canadian, you may also need to file form T1135 Foreign Income Verification Statement.

Key Takeaways:

  • For Canadian tax purposes, capital gain to be taxed is based on your sale price less your adjusted cost base for the shares sold.
  • Canadian need to report buying and selling of American stocks on their income taxes in Canadian dollars, which may require exchanging them from U.S. dollars to Canadian dollar amounts.
  • Employer contributions are recorded as salary on income tax forms.

“For Canadian tax purposes, when you’re buying shares in an ESPP, you need to calculate the adjusted cost base (ACB) for all the shares you have purchased over the years.”

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