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 Web site addresses the disparity for qualifying Canadian shareholders who would otherwise be considered to be in receipt of a taxable foreign dividend with respect to spin-off shares received in a corporate divisive reorganization that is a tax-deferred transaction for residents of the foreign jurisdiction in which the divisive reorganization occurs.