Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues: Whether shares of one US corporation distributed by another US corporation to a Canadian shareholder may be done on a tax deferred basis
Position: Yes
Reasons: Provided all the requirements in proposed section 86.1 are complied with.
2001-007043
XXXXXXXXXX J. Teixeira
(613) 957-2095
March 27, 2001
Dear XXXXXXXXXX:
Re: Foreign Spin-off - XXXXXXXXXX
We are writing in response to your letter of November 21, 2000, requesting information in respect to the tax consequences of receiving a stock dividend in the form of shares in XXXXXXXXXX from XXXXXXXXXX.
Under the existing law, the fair market value of the distributed shares is included in the income of the recipient at the time they are received. However, the Minister of Finance has tabled on March 13, 2001, a Notice of Ways and Means Motion to amend the Income Tax Act which contains a proposal to add section 86.1 pertaining to the tax treatment of foreign spin-offs. Section 86.1 will provide for the tax-deferred receipt of such distributed shares by a Canadian shareholder when all the conditions described in section 86.1 are met.
One of the requirements, in order for a foreign spin-off to occur on a tax-deferred basis, is that the distributing corporation must provide to the Canada Customs and Revenue Agency (the "CCRA") certain information, including the name and address of each resident of Canada who received property with respect to the distribution.
Once the Canadian shareholder has confirmed with the distributing corporation that the distributing corporation has met the requirements in section 86.1, the Canadian shareholder may make an election to defer the tax arising on the receipt of the distributed shares. Information on the CCRA's administration of the proposed legislation in respect to foreign spin-offs may be accessed on the CCRA website at http://www.ccra-adrc.gc.ca/tax/business/taxtopics/foreign-e.html. In the event that you do not have access to the internet, a copy of the information on the above-mentioned website is enclosed.
These comments are provided in accordance with the guidelines set out in paragraph 22 of Information Circular 70-6R4.
Yours truly,
for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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