ESPP - wtf

[81MC]

So my partner has a sweet ESPP benefit, I don't understand the entirety of the specifics because she doesn't apparently either. General gist, her firm matches up to X amount, no idea if its discounted.

Turns out, based on the apparent value, she holds a not-insignificant amount in company stock. Before I get her hopes up that we can in fact do what she is hoping for, anyone familiar with how these things work?

As I understand, she pays tax on the matched shares in the year they are purchased, with capital gains on the difference between ACB and 'sell' price? Cap Gains being 50% of this amount being claimed as income the year of sale.

How are these things managed? Literally never dealt directly with anything involving stocks. Is there just an offer to sell option and wham, stocks are sold? Do you need to find a broker? Beats me.

Not a clue, got one for me? Thanks.

[Johnny Makarov]

ESP - wtf would have been a way cooler topic.

[Ryan Coke]

In my experience there is likely a tool on the website that manages the ESP for the employees that will allow a sale directly, or you could transfer the shares into a personal trading account if you wished.

Otherwise, if you make a sell order, it would likely sell the shares at the “market” price, and then you would get the proceeds. There may be some tax withheld, which would get sorted when you do your tax return.

Otherwise, I think you got most of the tax implications correct. To be clear, the capital gains would be taxed on 50% of the gain, at her marginal tax rate.

[Leondros]

Typically these are managed by service providers such as Solium. She would get taxed on the employer contribution as they match through her T4. She would have a cost base on the entirety of the shares that would taxed on disposition when sold.

Plans vary but typically they follow normal black out periods and most often have a specific period of time they must be held.

Is this a public company? If so liquidity is less of an issue. If private, it gets a little more difficult and most of these types end up only paying out after a change of control.

[photon]

My company uses Shareworks, so all the ESPP stuff goes into an account there, I can log in and do stuff. Check to see if the company has something like that set up.

[TorqueDog]

Employee Stock Purchase Programs differ from company to company. Sometimes they match, sometimes you just get to purchase shares at a discount.

At a high level, it works like this:
- Employer allows employee to register with a broker that is working with the company to administer the ESPP (sometimes it's just one, other times you have multiple options)
- Employee can register to contribute X% of their post-tax payroll amount to the ESPP for the next period (often these periods are run in quarters). Employer agrees to match this percent up to a certain amount or provides the stock purchase at a discount, whatever they do.
- Over the next period, the employer will deduct the predetermined percentage from the employee's payroll and set it aside (let's say it's $100 per pay period).
- At the end of the collection period, you now have $600 (6 pay periods in a quarter x $100). The stock purchase will be made at the day's opening or closing price, whatever is decided in the program and be deposited into the broker that the employee set up with the employer.

At this point, you can just keep the stock in the ESPP broker, you can transfer it out to your own broker (what I do), or you can sell it immediately and pocket your profits (and you can do market orders, limit orders, etc.).

Tax implications... well... where the hell is Locke, someone get him in here.

[Hack&Lube]

Usually they will only match a percentage of salary, like 3-5%. You can't just buy unlimited shares and get double the shares for free.

[activeStick]

Yup, the information provided so far looks good. Our firm uses UBS One Source and as others have mentioned, your wife should be able to log into the site of whoever manages her shares to do whatever she wants to do. If she does a search in her old emails, she should be able to find a bunch of info and links related to how to create an account, etc. These older emails will almost certainly also link to internal FAQ guides related to her company's specific policies related to things like holding periods, withdrawals, etc.

[81MC]

Sounds pretty straight forward. The bigger complication I suppose is that the stocks seem to be (based on a cursory review) way worth holding and not something to get rid of atm. Thanks CP

[Sliver]

Originally Posted by 81MC

Sounds pretty straight forward. The bigger complication I suppose is that the stocks seem to be (based on a cursory review) way worth holding and not something to get rid of atm. Thanks CP

I'm a big proponent of diversifying out of espp shares as soon as they vest. Then you're basically buying shares at an average price and selling at an average price. The investment upside has already been achieved with the employer matching. Too much risk in your livliehood and your investments being tied to one company. Diversify at vesting and you'll only have like one year's worth of savings locked into the company.

[speede5]

My company matches 50% of my contributions up to 6% of my salary. Their contribution shows on my t4 so the tax is paid up front. When I cash out any gains get taxed in that year but Solium (ESP Manager) doesn't hold anything back. Mine are vested for a year and released a year to the day they were bought. My last plan they stayed vested for a full calender year but the clock started at the end of the fiscal year so it was common to have them locked up for well over a year. I max my contributions and cash out regularly, it's easy money and mosstly my emergency/major purchase fund.

My current company has been climbing since I started so it's been great, but I was with Bombardier when it went from ~40 down to 1.75 so there is a downside and this is why I don't let it get too big.

[Delthefunky]

We use shareworks, and once a year I transfer whatever's vested to my TFSA. They sell one share, and then charge about $20 to do it. The rest just shows up as shares and whatever $ is left over from the sold share.

[TorqueDog]

Originally Posted by Sliver

I'm a big proponent of diversifying out of espp shares as soon as they vest. Then you're basically buying shares at an average price and selling at an average price. The investment upside has already been achieved with the employer matching. Too much risk in your livliehood and your investments being tied to one company. Diversify at vesting and you'll only have like one year's worth of savings locked into the company.

The only reason I am on the fence with this is because I like getting quarterly dividends.

[Leondros]

Originally Posted by TorqueDog

The only reason I am on the fence with this is because I like getting quarterly dividends.

You could sell and diversify out of your company into another industry that provides dividends. If you are in Oil and Gas and in Calgary its a not brainer to cash out as soon as possible. Your house (if you own one), your job, your bonus, your other options/share units are all tied oil and gas. Most people in this city already have a huge amount of weighting to oil/gas pricing exposure.

[Lanny_McDonald]

Originally Posted by Johnny Makarov

ESP - wtf would have been a way cooler topic.

That was predictable.

[TorqueDog]

Oh, if I was in O&G I'd sell my shares as soon as they showed up in my ESPP account, I wouldn't even bother transferring them to my own broker. But I'm in tech, and they're not the only shares I hold.

[Sliver]

Originally Posted by TorqueDog

The only reason I am on the fence with this is because I like getting quarterly dividends.

Fair enough, as long as it passes this simple test: if you had the cash value of your shares, is the best place for that money in shares of the company you work for? Like, if you had, say, $25k in cash, would you buy shares in the company you work for with that money or would you explore other investments? The answer to that should inform what you need to do if you have $25k in shares through your espp.

[scotty2hotty]

I’ve been enrolled in an ESPP program with my company (US based) for over 10 years.

It’s free money …but not as lucrative as it once was. For me anyway.

Always a bummer when I get a semi-annual tax bill from my company for shares I haven’t even cashed.

[FanIn80]

Employee Savings Plan... Plan?

[Canadianman]

Originally Posted by FanIn80

Employee Savings Plan... Plan?

Employee Stock Purchase Plan.