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Income tax question - Canada only


Alekbaylee
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Say you bought 100 shares for a $ each in company A a few years ago.

In 2012, company B buys out company A, paying $0.50 cash + 0,5 of its own shares for each share of company A.

So you end up with $50 and 50 shares of company B that you intend to keep (no sale yet).

How do you report that to CRA? : You have a $50 loss for the money portion of the transaction, but what about the shares portion of the transaction?

How and when do you account for the 50 shares of company B that you now have?

 

Thx for any help.

 

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For the portion paid in cash it will be your sale proceeds for x many shares and then you can count your gain or loss on these shares for 2012. For the portion paid in stock for the rest of your shares, it is just a swap. Normally, it does not count as a sale especially if they are two Canadian companies. Your original cost basis for said shares will still be the same and the year you sell, you will calculate your gain or loss on them.

 

I would read the prospectus or management information circular on Sedar or documents you may have received by mail under the heading: "Tax consequence for Canadian holder". They should talk about the breakdown of what you are receiving per your original shares and if the share exchange is tax free. I have seen occurences of having to file a special tax election to obtain this treatment when it was a foreign company acquiring a Canadian company.

 

Cardboard

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Thx Cardboard.

So, this year I report a loss of $50 (cash portion) and then in x number of years, upon sale of company B's shares, I'll report the sale proceeds on a $100 cost basis (or a $ each) again, right?

Even if the original 100 shares of Company A are now only 50 shares of Company B.

Yes, it's 2 canadian companies but I can't find the circular/documents sent by the company.

 

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No, you are using the $100 cost basis twice in your calculations there.

 

You sold x number of shares in company A shares for $50

You traded y number of shares in company A for y*0.5 shares in company B

 

x + y = 100

 

Gain or loss on the cash portion:

Proceeds are $50

Cost basis is x*$1

50- (x*1) = gain or loss

 

Cost basis of shares in company B:

y*$1

 

Total cost basis:

(x*$1) + (y*$1) = $100

 

 

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That is what I was thinking Otsog, but we talked about the situation offline and in his take-over case, the share for share exchange portion does not appear to be a tax free exchange per the Management Information Circular, but considered a disposition. So the full package (cash and new shares) is the proceed.

 

Cardboard

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