ARCHIVED - Stock splits and consolidations

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INCOME TAX ACT Stock Splits and Consolidations

IT-65 September 8, 1972

Where all the shares of a class of stock of a corporation are replaced by a greater or lesser number of shares of the same class of stock of the same corporation in the same proportion for all shareholders, in circumstances where there is no change in the total capital represented by the issue, there is no change in the interest, rights or privileges of the shareholders and there are no concurrent changes in the capital structure of the corporation or the rights and privileges of other shareholders, no disposition or acquisition is considered to have occurred. The cost of the new shareholding to each shareholder will be the cost of the old shareholding divided into a different number of shares, e.g. in a 2 for 1 split each old share will be represented by two shares and if the cost of the old share was $100 the cost of each new share is $50 and in a 1 for 10 consolidation if the cost of an old share was $5 the cost of a new share is $50.

Where the original shares were owned by a taxpayer on December 31, 1971, the median rule provided in subsection 26(3) of the Income Tax Application Rules, 1971, will apply. For example, if the taxpayer owned shares of X Corporation which he acquired before 1972 at a cost of $25 each and the value on valuation day was $40 each, then subsequently these were split 5 for 1, each new share will be considered to have a cost of $5 and a V-Day value of $8.

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