Tax Treatment in Canada (Western-Steak-n-Shake)

[farnamstreet]

Prior to Western Sizzlin being taken over by Steak n Shake, Western Distributed the shares of Steak N Shake to its holders. I noticed on my T5 that CIBC classified this distribution as a "dividend" which is (painfully) very taxable.

 

Is this the correct tax treatment? (I hope not, my tax bill is insane!).

[leftcoast]

No, I don't think it is. I believe the distribution of SNS shares should be classified as a return of capital, not as foreign dividend income. I had the same problem on the 2009 T5 form that my broker provided. Unfortunately CRA would not take my word for it, so I had to send a request to my broker for a new T5 form (along with a detailed explanation of why). That was 3 months ago. Much to my frustration, they are still reviewing it and have yet to issue a new T5.

[omagh]

Farnam,

 

It was a stock dividend not a cash dividend.  Keep good notes, make the appropriate calculations based on your knowledge of the events and pay the appropriate taxes.  If you're working with a software tax package, this may be a good year to use an accountant instead.  For heaven's sakes, don't overpay the taxes because it will be much harder to recover with all your personal time going to waste.

 

http://www.cra-arc.gc.ca/E/pub/tp/it88r2/it88r2-e.txt

 

-O

Prior to Western Sizzlin being taken over by Steak n Shake, Western Distributed the shares of Steak N Shake to its holders. I noticed on my T5 that CIBC classified this distribution as a "dividend" which is (painfully) very taxable.

 

Is this the correct tax treatment? (I hope not, my tax bill is insane!).

[beerbaron]

Can someone help me understand the following paragraph:

3. A stock dividend must also be distinguished from a stock split. The fact

that a corporation may refer to a transaction as a stock split does not

prevent the Department from looking behind the language used to determine its

true nature. In a stock split, there is an increase in the number of shares

accompanied by a proportional decrease in the legal paid-up capital per share

so that neither the total amount of legal paid-up capital nor the total amount

of surplus available for distribution as a dividend is altered. In a stock

dividend, there is a distribution of shares accompanied by a capitalization of

retained earnings or any other surplus account available for distribution as a

dividend. For a discussion of the tax implications of a stock split, refer to

the current version of IT-65 entitled, Stock Splits and Consolidations.