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Foreign Spin-offs
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Personal Tax  ->  Stocks, Bonds etc. -> Foreign Spin-Offs - Tax Deferral for Distributions

Foreign Spin-Offs - Tax Deferral for Distributions

Income Tax Act s. 86.1

Previously, when a foreign corporation spun off a subsidiary company by distributing the shares in the subsidiary to shareholders of the parent corporation, although it may have been done tax-free to residents of the foreign country, it was a deemed dividend to residents of Canada. This would only affect Canadian shareholders who owned these shares outside of an RRSP or RPP.  The tax rules were changed in 2001, so that these spin-offs can now be done on a tax-free basis, by filing an election (in the form of a letter) with the paper tax return for the year in which the spin-off occurred.  Note that tax returns which include this election are not eligible for NetFile or EFile

There was a time limit within which taxpayers must apply to Canada Revenue Agency (CRA) to have their prior year tax returns amended to reduce income by the amount of the deemed dividend from the foreign spin-off.  This time limit has expired.  However, an extension for filing the required election may be allowed under the "taxpayer relief provisions" of the Income Tax Act.  For more information on the time extension, see the CRA article on the extension for foreign spin-offs.

There are certain conditions that must be met for these spin-offs to be done tax-free.  The foreign corporation must provide information to CRA regarding the spin-off, and have the tax-free status approved by CRA.

Canada Revenue Agency (CRA) Resources

Foreign Spin-offs

Revised: October 15, 2021

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