Conference kaosws::canada

    Mario,
    
    Remember that the profit you make in terms of Capital Gains is only
    the difference between what you sell for and the fair market value
    on the purchase date for the shares t hat were actually sold.
    
    If, for example you purchased shares with an FMV of $50 ... you will
    have paid $42.50 (or less if you the FMV was less at the start of
    the period). That difference between purchase price and FMV is not
    a taxable gain, but is a taxable benefit, added into your T4.
    
    So, if you sold those shares at $50 there is no cap. gain. If you
    receive less, then you have a cap. loss ... which you can report.
    If you receive more, then you have a cap. gain which you report.
    So, what you report is the gain or loss relative to $50.
    
    Stuart

  When calculating my stock capital gain/loss (more often loss) I always claim
  the cost to sell the stocks as a carrying cost. This would be the amount of
  the U.S. taxes paid plus the selling commission. These numbers appears on
  your receipt of sale (convert it to Canadian of course)

  Here's a little known tidbit that will help reduce your taxes...

  You can actually claim a portion of your Stock Plan taxable benefit as a
  deduction! For taxation years 1993 and 1992 it was 25%. In some previous
  years this percentage was higher but like many other tax deductions it is
  being eroded.

  You claim 25% of your stock plan taxable benefit on line 249, the stock
  options and shares deductions line. It comes directly off your income
  so if you are in the 50% tax bracket you'll get half of that 25% back.

  You should submit a copy of that taxable benefits letter Digital sends you
  with your T4 slip as your receipt for this deduction.

  Now you might question the legality of using this deduction for the Digital
  stock program. In fact if you call up the payroll folks in Toronto they'll
  tell you that the Digital stock plan is not eligible for this deduction.
  I've written Revenue Canada to get a ruling on this point and they are
  in fact allowing this deduction. Who are you going to believe?

  When I first found out you could claim this deduction I also decided to
  file a request to adjust my taxes for previous years. You are allowed to
  have any review of this type go back 6 years. My refund adjustment cheque
  was more than $1000!

  The taxable benefits of recent years have been poor simply because the stock
  has been on a downward spiral for the past 6 years but there has been a few
  pay periods where the stock has actually appreciated during a pay period.
  This of course results in a larger taxable benefit. What bothers me about
  Digital stock of late is that the stocks have typically lost this gain not
  long after. This means I'm now required to pay taxes on funds I never had.
  Yes I can report a capital loss on this amount but it doesn't help as they
  are not taxed in the same way. Being able to claim a deduction for the stock
  plan benefit helps to ease this pain at least a little bit.

  If there is a downside to using this deduction, it might be that you are now
  giving more visibility to the fact that you are enrolled in a company
  sponsored stock plan. Revenue Canada would therefore expect you to show
  sales of stocks at some point on Schedule 3. I've heard (just a rumor mind
  you) that some folks don't ever bother claiming proceeds from stock sells on
  their taxes because Revenue Canada cannot track these U.S. based stocks.
  Revenue Canada would of course be able to get most of the information from
  Digital itself should you ever be audited. For those of us who are honest
  this is not an issue. 
  
  I suspect that many employees enrolled in the stock plan don't take advantage
  of this deduction. This is the kind of tax advise that's hard to come by.
  Remember where you heard it. (I accept unsolicited tokens of appreciation)

  Mike

    I have been doing that for years, and last year, I claimed the FULL
    amount.  I have been told by a co-worker who dug very deep in this
    issue that you MUST keep the stock for two years in order to claim any
    amount on line 249, after that, the stock you sell "must" (should and
    other synonyms) be declared as capital gains [losses].
    
    Jean
    

Re .2

Right now when we sell the shares from the stock plan we use the FMV (fair
market value) as the cost of acquisition. The FMV is the amount we pay to buy
the shares plus the 15% taxible benefit.

My question is if you claimed some of your taxable benefit on line 249, when you
sell the shares, do you still use the FMV as the cost of accquisition or FMV
minus the amount previously claimed on 249?

I have been taxing on the taxable benefit from the stock plan since 89. It would
be nice to see if I can claim some of them back.

David

    I don't know, I have been too stupid to sell them when they were at
    $199-->$145--->$80----->$50------->$40---------->$35-------->?????
    
    Jean
    

    
    Re:-.1
    
    Obviously a true optimist.
    
    Pat

Re .3

  If you claimed the FULL amount then you are not doing it correctly. If you
  got away with it last year, then you're luckly. If you keep doing it, sooner
  or later you'll be required to repay this as it's not a legitimate deduction.
  Only 25% of the stock plan benefit is.

  I know of no condition that requires you to keep the stock for 2 years.

  Anytime you sell your stocks you are supposed to report the applicable
  capital gains or losses.


Re .4

> The FMV is the amount we pay to buy the shares plus the 15% taxible benefit.

  If the stocks gained value during the pay period, then this amount is also
  added to your taxable benefit. This amount can easily exceed the base 15%

> My question is if you claimed some of your taxable benefit on line 249, when
> you sell the shares, do you still use the FMV as the cost of accquisition or
> FMV minus the amount previously claimed on 249?

  The amount you claim on line 249 does not need to be included in any
  subsequent calculation. The difference between the FMV and the sale price
  minus any carrying costs is your capital gain/loss.

    Re -.1,
    
    	My father (used to work for the federal governement as a tax
    accountant) told me "it is illegal NOT to declare revenues, but it is
    not illegal to exaggerate your deductions"
    
    Jean
    

Re. last few    

I called Revenue Canada yesterday and explained the scenario on the Line 249
deduction. The officer explained that if the "Footnote" area on our T4 slips
indicate the stock option plan, then 25% of that benefits can be deducted on
Line 249; otherwise, the benefit is not eligible for deduction. I mentioned
there's a sheet attached to the T4 explaining the taxable benefits and that
part of the benefits is stock purchase plan. The answer was "Not Eligible".

Nevertheless, I am going to give it a try anyway on this year tax return.

I would get a second opinion.  These Revenue Canada "officers" are put on the
phone to answer simple questions like "where do I find this value on my T4
slip".  Anything complicated questions involving stocks and/or capital gains
and they may just be guessing, you never now.

Two years ago I took money out of my RRSP under the Home Buyers Plan.  This
money had to be recorded on my income tax form in some magic way.  I couldn't
figure it out so I called and talked to an "officer".  He did know so he put me
through to his supervisor.  I spent 20 minutes with this clown, filled out all
the lines and submitted it.  Two months later I got home and had a phone message
from Revenue Canada (You can image what the felt like.)  Turns out I did it all
wrong.  This particular "officer" was kind enough to fix it all over the phone
and send me my check.


Good luck,
Dave.

    Being a C.A. who studied tax (a long time ago), I'm interested in the 
    rules for this deduction, so I dug out my an excellent text book 
    which puts the Tax Act into ENGLISH. So for those who might like to 
    understand more about the rules, so you can make your own interpretation, 
    
    (Disclaimer: this is free advice so "user beware") 
    
    ** Risk ** If we do take a deduction that we are not entitled to, even 
    if Revenue Canada lets it go by, if/when Revenue Canada audit us, or 
    figures it out, at a minimum, the person would have to pay all the back 
    taxes (typically 7 years back), plus interest on the overdue payments, 
    plus each person may be subject to fines and penalties. 
    
    ** The taxable benefit and impact on subsequent gain: ** 
    
    "... employees, who acquired shares from a public corporation under a 
    stock option agreement, were required to include in their employment 
    income a benefit by which the fair market value of the shares at the 
    time the share's were acquired exceeded the price actually paid (the 
    exercise of option price). The employment benefit was then added to the 
    adjusted cost base of the shares by virtue of paragraph 53(1)(j) so 
    that any resultant capital gain would reflect the increase in values 
    since the acquisition dates." (page 290)
    
    ** The Deduction rules: **
    
    "There is, however, a reduction under paragraph 110(1)(d) of one-half* 
    of the employment benefit if the OPTION PRICE was NOT LESS THAN THE 
    FAIR MARKET VALUE of the same AT THE TIME THE OPTION WAS GRANTED." **
    
    * "one-half" deduction was in 1986; I don't know when it went to 25%.    
    Or if there has been any subsequent changes to these specific rules. 
    
    ** THE REAL TEST: Was the price we paid (the "option price") less than 
    the fair market value at the time the option was granted? 
    
    For example, if you join a company when the stock is trading at 
    $50/share, and are given a stock option to buy the stock at $60/share 
    anytime, then you later buy the stock when it is trading for $100 a 
    share, you would have to include the benefit of (100 - 60) $40/share, 
    but you would also be eligible for a deduction of % x $40. 
    
    Had the stock been trading at $65/share when you given the $60 option, 
    you would still have the $40 benefit, but with NO deduction.
    
    I guess if we can argue that the OPTION PRICE was the price of the 
    STOCK less 15% WHEN we ORIGINALLY JOINED THE PLAN, and the price of the 
    stock has been spiraling downward since then, that the original option 
    price is not less than the FMV of the current share price, then we 
    might have a case. 
    
    My common (accounting) sense has always told me the real option price 
    is the price we ultimately pay, which is ALWAYS LESS than the FAIR 
    MARKET VALUE (FMV). In this case, the Digital plan wouldn't be 
    eligible, and we could not take the deduction. 
    
    I'm also leery, because the tax guide seems to indicate that Digital 
    should put "a footnote on the T4 slip" if the stock option is eligible 
    for this deduction. The fact that we have a slip showing the benefit is 
    irrelevant; we have the benefit whether or not we can get the 
    deduction.
    
    Having said all that, since Mike Hutchings has received a ruling, 
    (thanks to Mike for passing this info on!!) I'll probably take the risk 
    and go for the deduction this year, but I want to know the rationale. 
    
    QUESTION: DOES ANYONE KNOW THE RATE FOR 1991? Thanks. 
    
    
    ** What's the "2 years" got to do with it? ** 
    
    "Where, however, the corporation was a Canadian-controlled private 
    corporation and the employee held those shares for at least two years, 
    the employee was not taxed on the benefit as employment income , but 
    was taxed, at the time he actually disposed of the shares, as a 
    capital gain." 
    
    Alas Digital Canada is NOT a "Canadian-controlled private corporation". 
    
    Reference: 
        Introduction to Federal Income Taxation, 7th Edition 1986-87, 
    	R.E.Beam F.C.A, and S.N. Laiken, PH.D.. 
    
    

    The problem with all of this of course is that what most of us call our
    "stock option plan" is the ESPP, which is a stock purchase plan as
    opposed to a true stock option. One has a cash account with the company
    which is converted directly to stock at an agreed discount price,
    technically this is NOT a stock option. There are true stock options 
    available to some (Digital does, or did, have one called ESOP) and these 
    qualify for line 249. 
                                          

	 taxation year 1993	25%
	 taxation year 1992	25%
	 taxation year 1991	25%
	 taxation year 1990	25%
	 taxation year 1989	33.33%
	 taxation year 1988	33.33%
	 taxation year 1987	50%
	 taxation year 1986	50%