Moving - Employee Stock Purchase Plan

bmozaffari · Post by **bmozaffari** » Mon May 08, 2006 10:57 pm

Hi,

I'm moving from Canada to the US and I'm enrolled in our company's employee stock purchase plan with the period ending on June 30th. I expect around $4500 in ordinary income, considered earned as of that exact date. I usually hold on to the stock for 2 weeks (or is it 1 week?) to avoid IRS withholding upon sale, and am subject to capital gains/loss on the date of sale payable to Revenue Canada at the end of the year.

As luck would have it, I think I will move right around that date, possibly July 1st or maybe even a few days earlier. How would this change things for me, (a) if I move before the stock is purchased or (b) if I move after purchase but before selling or (c) if I sell early and then try to get a refund from IRS. The last case seems the toughest, explaining to IRS that I, now a US resident at time of filing, was a Canadian resident when the withholding took place.

TIA, Babak

bmozaffari · Post by **bmozaffari** » Thu May 11, 2006 8:16 pm

Is my question too specific? Irrelevant? Something I should get a consultation for? People, advise please!

nelsona · Post by **nelsona** » Fri May 12, 2006 12:29 am

I don't see a 'pay for consultation' button on this site, so you get what you get.

If you move before the stock purchase, it becomes a US-only reportable event.

if you move between purchase and sale, it becomes a deemed disposition in Canada (FMV - purchase price) and then a sale in US based on the deemed price, if you choose to be a part-year US resident, otherwise

If you sell quickly, the withheld tax by IRS will be come part of your tax payments for the year 2006, but the sale will not be subject to US tax - UNLESS you elect to be taxed as a resident for the full-year (which is almost always beneficial) in which case the purchase and sale, as well as any others that occurred this year would be reportable and taxable in US -- with credit given for the Cdn tax paid on the pre-departure sales.

as to expalanation -- if you elect to be part year US resident -- this is done on a 1040NR and has ample space for you to expalin this.
But, as Isaid, it is not likley that you will file as a part-year resident in US, so the timing of the sale is really irrelevant for IRS purposes (all your purchases and sales will be reported this year, even the ones from Jan-June) , but selling before moving is simpler from a Cdn point of view.

bmozaffari · Post by **bmozaffari** » Fri May 12, 2006 9:51 am

Thanks Nelsona, very helpful and insightful as always.

I think I'm just beginning to understand the implications of declaring oneself a full time resident on the US side.

You said non-discrimination excludes pre-arrival Canadian wages, I assume from this post that the ESPP discount resulting on ordinary income realized on purchase is not subject to that exclusion?

I've also had some Capital gains from stocks I sold earlier this year. On the other hand, I have Capital losses cause I bought US Currency which will be deemed disposed of at time of move at a lower conversion rate, resulting in a capital loss... I was looking for that to offset the stock capital gain and not pay Canadian taxes on it.

So now, I would have the capital gains from the stock in the US, with no credit for Canadian taxes paid... would I also get the capital loss from US currency?

I'm also confused about how a credit will be claimed for taxes paid on the ESPP discount. It's considered regular income in Canada and added to my salary, so how is that tax disected to figure out the relevant part for a credit?

nelsona · Post by **nelsona** » Fri May 12, 2006 2:43 pm

If your espp is wages, then the portion 'earned' before arrival in US can be exempted by 2555, just like your wages are.

Your capital losses on US$ currency will be zero when converted. I don't believe 'cash' is deemed disposed on departure regardless of the currency, so you may have to sell the currency while in Canada to trigger any loss (if that would even be beneficial). all your other capital transactions will have to take into account US value on the bought and on the sold dates.

bmozaffari · Post by **bmozaffari** » Fri May 12, 2006 3:29 pm

Nelsona,

The USD cash was purchased and invested in a GIC... we discussed it a few months back and you actually said yourself it would trigger a capital loss:

Me: "I will keep my USD till I move to the US some time in 2006, at which time it will be "deemed" disposed of, and I can use the portantial capital loss from it (based on the day's exchage rate) to offset capital gains from an unrelated stock transaction?"

You: Your description of how you will handle the deemed disposition is correct. You will need to have a 'loss' of at least $200 to claim this.

Now does all this change because/if I elect to be treated as full-year tax resident in the US?

nelsona · Post by **nelsona** » Fri May 12, 2006 3:43 pm

A GIC is not cash. even at that, YOU might want to check the deemed dispo rules, since it is YOU that will be utilizing them.

And when I say "I don't believe..." that is code for you to look up the info an confirm. I may have been right before, but you can easily confirm this for yourself. Let us all know what you find...