The company I work for has a deferrred share plan. Each year I can buy up to $5K of shares with pre tax $$$. The accompanying doco doesn't make tax implications clear. I know that when you sell the shares you pay tax on the whole amount but I am not sure how it is broken down...say for example, I buy $5K of shares & I don't participate in the divi redistribution plan. After a few years the shares are worth $10K. Tax implications:
- You add the full $10K onto your gross for the year and pay tax accordingly or - You add the initial $5K onto your gross and the profits (the other $5K) is treated as a capital gain and you only pay tax on 50% of that.
The second solution seems logical to me although you are going in with pre tax $$$ so I have heard that the first solution might hold sway.
