[Elbyron]

I participate in an employee stock purchase plan, in which a portion of each paycheque goes to purchasing company stocks at a discount. What makes this complicated is that my company is based in the US, and trades on the NYSE. So the paycheque deductions are being converted to US dollars at some rate that I don't have any info about, and are used to buy a bunch of stock every 6 months (it is purchased at the lower of the starting price and ending price for that period, minus the discount).
Now in past years in which I sold stocks, what I have done to calculate my ACB is to use the selling price minus the non-discounted purchase price (because I already pay tax on the discount, as a taxable employee benefit). I then multiply this by the number of stocks sold. There are no purchasing costs to add in. I'm not sure if I'm doing this part right, but someone told me this was the way to calculate it and the CRA has never complained, or perhaps never noticed.

Now what I'm pretty sure I've been doing wrong is neglecting the fact that the purchase and selling price are in USD, and that the currencies fluctuate in that time. I often accumulate for several periods before selling it all to save on brokerage fees, so there could be pretty big variations between what the stock was worth in Canadian dollars when I bought it and when I sold it. I'm guessing both the buy and sell prices should be converted into CAD at two different conversion rates, and then multiplied by the number of stocks to get the correct ACB. But what conversion rate do I use for the purchase price, when the purchase money is being converted upon withdrawal from each paycheque? And what conversion rate should be used for the sale price, given that I didn't actually convert the money (it's still in USD)?
Do I just lookup the historical conversion rate for the date of purchase and the date of sale?

 

[kcowan]

CRA are pretty flexible. Just decide what you use. I use June 30th for the year but you can pick any approach like quarterly or actual. Once you decide, you need to stick to it. I would use the exchange rate to adjust your cost basis and then use it when you actually sell the shares.

 

[humble_pie]

good for you, you are already working on something that many people don't even realize, which is that the exchange rate used to calculate CAD cost base of US shares sold is, almost without exception, different from the exchange rate used to calculate proceeds of disposition in CAD.

here's how i would do it:

fortunately you have only 2 stock purchases each year, or every 6 months. It is the exact amount of USD utilized in these purchases that will matter, not the amounts withdrawn from your pay cheques. Surely your employer provides you w a detailed stock purchase report. Surely this shows the dates, share prices, total costs & no of shares acquired for each purchase event, no ?

there are several ways to arrive at an exchange rate that's acceptable to the CRA, as others mention upthread. The simplest is to use the official bank of canada average for a particular year. At the other extreme, taxpayer can log in each & every trade using bnk of canada noon rate for that day. In between, taxpayer could use a monthly average rate, or an annual rate set upon the exact same date every year as kcowan is doing. The crucial aspect is to be 100% consistent with whatever approach you decide to use - for both cost base calculations & proceeds of disposition (sell) calclulations.

so i'd choose my exchange reporting methodology & i'd keep a running log of my shares, their cost upon acquisition in CAD, and their proceeds upon disposition in CAD.

it's an interesting detail that you've already sussed out, namely, how not to utilize the discounted value of shares upon acquisition because you're already being taxed on that discount; so smartly enough you'll use the higher market prices of the acquisitions. These prices should also show up on your employer's share purchase reports.

as for how you've reported in the past, it may not be quite cricket but there's probably zero chance the tax authorities will ever go back & notice.

 

[Zeeshan Hamid]

In a similar situation, so trying to understand something :-

Date-A :- Company gives you 1 share for $10 US. Exchange rate at noon that day means it cost you $10.10 Cdn.
Date-B :- You sell that share for $11 US. Exchange rate at noon that day means you gain $10.90 Cdn.

You pay capital gain on $0.80.

But in reality, what you have in your US trading account is $11 US. So you transfer that to Canadian dollars and you actually receive $10.70 Cdn. So you paid capital gain assuming the value was $10.90 Cdn, but you only ended up with $10.70.

How do you account for the missing $0.20? Is that income loss or capital loss? Where do you report it?

Thanks.

Zeeshan