Canadian Personal Finance Blog

Archive for January 29th, 2008

As part of the capping of my pension and putting me into a different kind of pension, my company automatically put me in the stock purchase plan, where every quarter the company will allow me to purchase stock in my company at a 15% discount (which in turn becomes a taxable benefit and I am taxed at the end of the year for that 15% discount) very quarter year. This stock is then available to me, to do with what I want, and the amount of my pay cheque that I wish to commit to this stock purchase plan is variable as well (currently I have started at a very low percentage), up to a maximum of 10% of my salary (and there is a monetary value which is a maximum that you can purchase in the year).

Is this a good thing? I don’t really know, but let’s weigh a few points:

• If I hold this stock, I am investing more money in my company. As has been pointed out by a few of the financial bloggers, I am already heavily invested in my company, in that they pay my salary, now I am putting more money into this company. Putting this many eggs in this basket might be imprudent, with any company (unless you are working for a bank, in which case invest away).
• If the company stock is volatile, holding the stock could mean that I get taxed on the 15% discount (as straight work income) however that value may disappear from the company stock, and thus I will be taxed on something that does not exist any more.
• Are there other points I am not thinking about? I’m open to further points that I might be missing here.

So the obvious strategies for this are:

• As soon as the stock is available to me, sell it right away, and realize the 15% discount and then invest it in some other investment vehicle (presumably something less volatile than the stock might be).
  • A corollary to that would be sell the stock right away and take this money and put it on the largest debt that I currently have (Mortgage or Car Loan), given the money has already been segregated from my normal funds. I still have to pay the 15% discount, but that is now thrown onto a debt accruing interest already.
• Transfer the stock into my RRSP right away, and thus hide the 15% discount in the RRSP and have an 85% add into the RRSP, and then either hold or sell the stock on the basis of how comfortable you feel holding it.
• Hold the stock as an investment vehicle, and continue to hold it in that fashion. Set up stop sell rules for it, and forget about it.

I’m not completely sure what my plan actually is going to be, but for now I am leaning towards the corollary of idea #1 (Grab that Cash with both hands and, pay some bills (to paraphrase Pink Floyd)).

Any ideas from the readers?