What is a foreign spin-off?
When a Canadian resident shareholder of a foreign corporation receives from that corporation shares in another foreign corporation, these shares are called spin-off shares.
A spin-off is a divisive reorganization under which a corporation (the original corporation) issues to its shareholders shares in another corporation (the spin-off corporation). This can occur on a tax-deferred or taxable basis, depending on the facts and the law of the jurisdiction in which the spin-off occurs and the shareholders reside.
The appropriate corporate and tax law that applies to a corporation that undertakes a reorganization is specific to the particular jurisdiction in which the original corporation is incorporated and is undergoing the reorganization. However, shareholders of the original corporation may not reside in that jurisdiction. Therefore, the tax law that applies to those shareholders can differ from the tax law that applies in the country where the original corporation is reorganized.
The special election explained on this website addresses the disparity for qualifying Canadian shareholders to exclude from income the amount that would be considered a taxable foreign dividend for spin-off shares received in a corporate divisive reorganization.
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