Stock option might be a loss -

QUESTION: I work in Montreal for a multinational company which stocks is within the Dow Jones. I've been granted in 2001 and 2002 stock options (not RSUs). I exercise them last year and the gain appears in my T4 in box 38. Eventually with the difference of the exchange rate (US$ vs CAD$) between the grant date and exercise date... I should be having a loss. How can I report that to the "taxman" ? 
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david ingram replies:

You say 'should be having' a loss which implies you still have the stock and will lose money in the future.  However, I think the stock has already been sold.  IF SO,

I understand the question but do NOT understand why you would have a loss unless you exercised the option when it was already in a minus position in which case, it would have been silly to exercise the option on the exercise date.

Your problem is a constant one for us at this point with the rise in the Canadian dollar at the moment, we regularly have people who made money in the US on things like the sale of a rental house and had to pay tax to the US but when they convert the numbers to Canadian dollars, they lost money.

If you in fact exercised the option, only to find that you had lost rather than made money, you will have created a capital loss which would go on schedule 3 of your T1 return. On the other hand, if this is what really happened, then the payroll department should not have put a profit on your T4 slip.

If you exercised the option and took possession of the stock and you lost money subsequent to the date you exercised the option, you have a capital loss but only when you sell it.  If you have actually sold the stock, put the loss on schedule 3 and it will carry forward for use in the future.

If you have not sold the stock, you have not yet incurred the loss unless you bought it at a loss.  If you bought it at a loss, go back to the company and have your T4 slip changed.

I am sending this out to my list - someone else may have an opinion I have missed.

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This is not intended to be definitive but in general I am quoting $900 to $3,000 for a dual country tax return.

$900 would be one T4 slip one W2 slip one or two interest slips and you lived in one country only (but were filing both countries) - no self employment or rentals or capital gains - you did not move into or out of the country in this year.
 
$1,200 would be the same with one rental
 
$1,300 would be the same with one business no rental
 
$1,300 would be the minimum with a move in or out of the country. These are complicated because of the back and forth foreign tax credits. - The IRS says a foreign tax credit takes 1 hour and 53 minutes.
 
$1,600 would be the minimum with a rental or two in the country you do not live in or a rental and a business and foreign tax credits  no move in or out

$1,700 would be for two people with income from two countries

$3,000 would be all of the above and you moved in and out of the country.
 
This is just a guideline for US / Canadian returns
 
We will still prepare Canadian only (lives in Canada, no US connection period) with two or three slips and no capital gains, etc. for $200.00 up. However, if you have a stack of 1099, or T3 or T4A or T5 or K1 reporting forms, expect to pay an average of $10.00 each with up to $50.00 for a K1 or T5013 or T5008 or T101 --- Income trusts with amounts in box 42 are an even larger problem and will be more expensive. - i.e. 20 information slips will be at least $350.00
 
With a Rental for $400, two or three rentals for $550 to $700 (i.e. $150 per rental) First year Rental - plus $250.
 
A Business for $400 - Rental and business likely $550 to $700
 
And an American only (lives in the US with no Canadian income or filing period) with about the same things in the same range with a little bit more if there is a state return.
 
Moving in or out of the country or part year earnings in the US will ALWAYS be $900 and up.
 
TDF 90-22.1 forms are $50 for the first and $25.00 each after that when part of a tax return.
 
8891 forms are generally $50.00 to $100.00 each.
 
18 RRSPs would be $900.00 - (maybe amalgamate a couple)
 
Capital gains *sales)  are likely $50.00 for the first and $20.00 each after that.

Catch - up returns for the US where we use the Canadian return as a guide for seven years at a time will be from $150 to $600.00 per year depending upon numbers of bank accounts, RRSP's, existence of rental houses, self employment, etc. Note that these returns tend to be informational rather than taxable.  In fact, if there are children involved, we usually get refunds of $1,000 per child per year for 3 years.  We have done several catch-ups where the client has received as much as $6,000 back for an $1,800 bill and one recently with 6 children is resulting in over $12,000 refund. 

Email and Faxed information is convenient for the sender but very time consuming and hard to keep track of when they come in multiple files.  As of May 1, 2008, we will charge or be charging a surcharge for information that comes in more than two files.  It can take us a valuable hour or more  to try and put together the file when someone sends 10 emails or 15 attachments, etc. We had one return with over 50 faxes and emails for instance. 

This is a guideline not etched in stone.  If you do your own TDF-90 forms, it is to your advantage. However, if we put them in the first year, the computer carries them forward beautifully.
 









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