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Technology Stocks : JDS Uniphase (JDSU) -- Ignore unavailable to you. Want to Upgrade?

To: MKB who wrote (4901)	1/21/2000 12:03:00 AM
From: t2	Respond to of 24042

MKB I have answers to your questions. Maybe some can confirm. Re: Canadian tax matters 1. I heard from some source that gains from options are taxed at the time of exercise, even without selling the stock. Is this true? No, that is false. Your source may be confusing "employee stock options" with options traded on the markets. In certain certain situations an employment benefit can result. 2. What net income qualifies for the highest tax bracket right now? I believe it any income over approximately 59,000.---currently 29% and then there is provincial tax on top of that (varies). If it was 50%, then your tax rate would be 29% X 1.50 = 43.5%. However, there would also be surtaxes in federal level and some additional taxes at provincial levels. The provincial situation varies. Basically, you get taxed around 50% total. The rate of tax on capital gains from stock or option trades would be approximately 50% X 0.75 = 37.5%. The federal rate for income 30k to 59k is 26% and the rate for income below 29k is 17%. Of course the provincial rates are added to these. 3. Does anyone know a good strategy of minimizing taxes from options/stock trading? This is complicated. If you sell your options, you get taxed on the gains or losses. If you excercise the cost of the option gets added to the price at which you exercised. Supposing you have big gains in your options, you may want to exercise. As you hold the stock and the gains build up, what will you if you get nervous about the markets. You can sell covered calls (pocket the premium) and buy them back if they are worth something (otherwise they expire worthless of course). You gain or loss would be "realized" and subject to tax. If for example you suffered a loss and you want to sell some of your shares to make use of the loss, you can do so. This process keeps your gains in the shares you continue to hold as "unrealized" and therefore not taxable until there is a disposition. This above strategy would be good if you have a very concentrated portfolio such holding only JDSU/JDU. Having one's eggs in one basket is a risky strategy OR being on margin. You can do the same sort of thing with out of the money puts as insurance against a steep decline in the stock. If a stock tanks 50 points and you have puts, you could sell the puts for a gain buy keep holding your stock. If on the other hand the puts expire worthless and the stock holds or goes up, you have "realized" a loss on your puts. These are the costs of insurance. Your question number 3 is very complicated and depends upon so many factors. Who knows, the best strategy could be to just hold the shares without the complications i listed. If your portfolio is small, you may just want to trade the options without worrying about exercising. In the end we get taxed on the gains anyways. I am just hoping for lower tax rates down the road when i sell non-RRSP shares. The downward pressure on tax rates in the US will surely have a ripple effect in Canada (i hope). Good Luck