Taxation of Tender Offers in Canada

[oplia]

I wonder if someone has any experience with Canadian tenders and could clarify the taxation issues for non-residents.

 

An example:

Mainstreet Equity (MEQ) is tendering for C$36 vs current price of C$35.25;

However, within the taxation notes on the issuer bid statement (see below), I find that almost full payment for shares will be treated as dividend and levied a withholding tax (for non-residents).

 

So, do I understand this correctly that even if all my shares are accepted for tender, the net amount I will receive will be (C$36-C$2.74) * 85% + C$2.74 =  C$31 per share, which would be far below the purchase price?

 

Am I misunderstanding something here?

 

 

"A Non-Resident Shareholder who sells Shares to Mainstreet under the Offer will be deemed to receive a

dividend equal to the excess, if any, of the amount paid by Mainstreet for the Shares over their paid-up

capital for Canadian income tax purposes. Mainstreet estimates that the paid-up capital per Share on the

date of take-up under the Offer will be approximately $2.74. As a result, Mainstreet expects that NonResident

Shareholders who sell Shares under the Offer will be deemed to receive a deemed dividend for

purposes of the Tax Act. The exact quantum of the deemed dividend cannot be guaranteed. Any such

dividend will be subject to Canadian withholding tax at a rate of 25% or such lower rate as may be

substantiated under the terms of an applicable Canadian tax treaty. For example, a dividend received or

deemed to be received by a Non-Resident Shareholder that is a resident of the United States for the

purposes of the Canada-United States Income Tax Convention (the “U.S. Treaty”), is eligible for benefits

under the U.S. Treaty, and is the beneficial owner of such dividends will generally be subject to

withholding tax at a treaty-reduced rate of 15% (or 5% if the beneficial owner of the dividends is a

company that owns at least 10% of the issued and outstanding Shares)."

 

 

[aws]

Certainly looks to be the case, but don't forget that you'll be able to claim that as a foreign tax credit on your US return.  Ideally the taxes withheld will end up being a wash, but that wouldn't be the case if you did this in an IRA or some other tax free account.

[oplia]

does not sound very inspiring to have money locked up in tax credit accounts.

If that is indeed the case I am surprised the company trades so close to the tender price - similar dividend like treatment seems to apply for Canadian residents as well.