Foreign corporations have to file certain information with the Canada Revenue Agency (CRA) so that its Canadian shareholders can elect under section 86.1 of the federal Income Tax Act for the spin-off dividend.

Requirements for U.S. corporations

U.S. corporations have to provide all of the following information and documentation:

• evidence that at the time of the distribution, the shares (of the original corporation) of the class that includes the original shares are widely held and,
  • for public corporations, actively traded on a designated stock exchange in the United States
  • for private corporations, required, under the Securities Exchange Act of 1934 of the United States, to be registered with the Securities and Exchange Commission of the United States, and that they are so registered
• the date of the distribution, and the type and fair market value (FMV) of each property distributed to residents of Canada
• the name and address of each resident of Canada (including brokers and other intermediaries) who received property for the distribution
• evidence that the U.S. corporation and the spin-off corporation were never resident in Canada
• evidence that the distribution is not taxable under the U.S. Internal Revenue Code. For this purpose, a copy of the ruling letter issued by the Internal Revenue Service confirming that the distribution is not taxable to U.S. residents should be provided to CRA if one was obtained. If a ruling letter was not obtained, both of the following evidences must be provided:
  • the original corporation and the spin-off corporation reported, in their filings to the Securities and Exchange Commission, that their intention was to structure the transaction so that it be tax-free to shareholders for U.S. tax purpose
  • the original corporation communicated tax reporting instructions with regards to a tax-free distribution to U.S. shareholders following the distribution

The CRA will be able to review the submission more quickly if a copy of the information package mailed to shareholders announcing and/or describing the distribution is provided with the above information.

If the shares distributed in the course of the spin-off had rights to purchase other shares attached to them, the corporation should do all of the following:

• confirm that the rights plan was established for bona fide business purposes other than to obtain a tax benefit
• confirm that the rights did not have any significant value independent of the shares being spun-off at the time of the spin-off
• provide a copy of the shareholder rights plan or the information circular describing the nature of the rights plan (and, in particular, the contingent nature of the rights being transferred with the spin-off shares)

Requirements for non-U.S. corporations

Non-U.S. corporations have to file the same information as U.S. corporations, with the following changes:

• the designated stock exchange need not be in the United States
• the evidence that the distribution is tax free to the domestic shareholders should be from the tax authorities in the jurisdiction where the distribution took place. The nature of the required evidence will depend on the tax laws and policies of that jurisdiction

Furthermore, for non-U.S. spin-offs, the distribution is also subject to other terms and conditions that are prescribed by the Department of Finance. If a non-U.S. spin-off meets all of the other conditions, the CRA will request that the Department of Finance consider it for prescription.

Consent to publish approved spin-offs

If the spin-off is approved, you may want to make it public on the CRA website to reduce the corporation's workload on informing Canadian shareholders.

To make the approved spin-off public on the CRA website, we need a written consent signed by an officer of the corporation. You may use the following text:

"I, (name and title), on behalf of (name of corporation), consent to the Canada Revenue Agency (CRA) publishing that the spin-off of (name of the other corporation) has been approved on (date of spin-off) for the purposes of section 86.1 of the Income Tax Act."

Send your documentation and consent letter to the following address:

Canada Revenue Agency
Montreal Tax Services Office
International Tax, Division 446
305 René-Lévesque West Boulevard
Montreal QC H2Z 1A6
Canada

The CRA has to receive this information before the end of the sixth month following the day of distribution. This deadline cannot be extended.