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: Taxation of shares received on a spin-off.
Position: Taxed as a dividend.
Reasons: Shares distributed by a corporation to its shareholders on a pro-rata basis are considered as dividends for Canadian tax purposes.
May 18, 2000
XXXXXXXXXX
Dear XXXXXXXXXX:
The Honourable Martin Cauchon, Minister of National Revenue, has asked me to reply to your letter of March 26, 2000, in which you raise concerns with respect to the tax policy related to the XXXXXXXXXX spin-off by XXXXXXXXXX of its subsidiary, XXXXXXXXXX.
In your letter, you question why you and other Canadian shareholders of XXXXXXXXXX have to pay tax on the full amount of the spin-off as though you received cash.
On the XXXXXXXXXX spin-off, shares of the subsidiary were distributed to its shareholders on a pro rata basis. Under Canadian tax law, this distribution was a payment of a dividend in kind to the shareholders of XXXXXXXXXX. This dividend is taxable to Canadian shareholders of XXXXXXXXXX as the Income Tax Act does not provide for any kind of deferral with respect to such a dividend. This interpretation has been confirmed by the Department of Justice.
The Department of Finance has responsibility for tax policy and any amendments to the legislation. The Canada Customs and Revenue Agency (CCRA) is responsible for administering the law in accordance with the policy prescribed by the Department of Finance. Accordingly, your request would have to be considered by that department. In this regard, I note that you have also addressed your letter to the Minister of Finance, who will consider your concerns regarding tax policy.
Thank you for bringing this matter to the attention of the CCRA.
Bill McCloskey
Assistant Commissioner
Policy and Legislation Branch
C.C. The Honourable Paul Martin, P.C., M.P.
Minister of Finance