RE:RE:RE:RE:RE:tender offer for common sharesIt would depend on your individual tax strucutres I guess. Dividend income to an individual taxpayer is taxed more efficiently than regular income to that same individual taxpayer. But only 50% of a capital gain is taxed. I think for many investors they would prefer the capital gain to the deemed dividend. Anyway, below is the tax summary information in the Circular that was prepared by Stikeman Elliott LLP:
Disposition of Common Shares and Deemed Dividend
A Canadian Resident Common Shareholder who sells Common Shares to Aimia pursuant to the Offer will be deemed to receive a taxable dividend equal to the excess of the amount paid by Aimia for the Common Shares over their paid-up capital for purposes of the Tax Act. Aimia estimates that the paid-up capital per Common Share as of the date hereof is approximately $0.01 (and following the Expiry Date, Aimia will advise Common Shareholders of any material change to this estimate). As a result, Aimia expects that a Canadian Resident Common Shareholder who sells Common Shares pursuant to the Offer will be deemed to receive a dividend for purposes of the Tax Act. The exact quantum of the deemed dividend cannot be guaranteed.
Any dividend deemed to be received by a Canadian Resident Common Shareholder who is an individual will be subject to the gross-up and dividend tax credit rules normally applicable to taxable dividends received by Canadian resident individuals from a taxable Canadian corporation, including the enhanced gross-up and dividend tax credit if Aimia validly designates the dividend as an “eligible dividend”. There may be limitations on the ability of a corporation to designate dividends as eligible dividends. Subject to such limitations, Aimia intends to designate the maximum amount of the deemed dividend permitted as an eligible dividend for these purposes.
Subject to the application of subsection 55(2) of the Tax Act, as described below, any dividend deemed to be received by a Canadian Resident Common Shareholder that is a corporation will be included in computing such Canadian Resident Common Shareholder’s income as a dividend, and will ordinarily be deductible in computing its taxable income subject also to all other limitations under the Tax Act. To the extent that such a deduction is available, private corporations (as defined in the Tax Act) and certain other corporations may be liable to pay refundable tax under Part IV of the Tax Act.
Under subsection 55(2) of the Tax Act, a Canadian Resident Common Shareholder that is a corporation may be required to treat all or a portion of any deemed dividend that is deductible in computing taxable income as proceeds of disposition of capital property and not as a dividend, generally in circumstances where the Canadian Resident Common Shareholder would have realized a capital gain if it disposed of any Share at fair market value immediately before the sale of Common Shares to Aimia, the sale to Aimia resulted in a significant reduction in such capital gain and the dividend exceeds the “safe income” in respect of the particular Share that could reasonably be considered to contribute to such capital gain. Subsection 55(2) of the Tax Act does not apply to the portion of the taxable dividend subject to tax under Part IV of the Tax Act that is not refunded under the circumstances specified in subsection 55(2) of the Tax Act. Generally, the safe income in respect of a particular Share held by a Canadian Resident Common Shareholder is the portion of the Corporation's undistributed income for purposes of the Tax Act which is attributable to such Share and which is earned or realized after the time the Canadian Resident Common Shareholder acquired the particular Share. The application of subsection 55(2) involves a number of factual considerations that will differ for each Canadian Resident Common Shareholder, and a Canadian Resident Common Shareholder to whom it may be relevant is urged to consult its own tax advisors concerning its application having regard to its particular circumstances.
The amount paid by Aimia pursuant to the Offer for the Common Shares less any amount deemed to be received by the Canadian Resident Common Shareholder as a dividend (after the application of subsection 55(2) in the case of a corporate Canadian Resident Common Shareholder) will be treated as proceeds of disposition of the Common Shares. The Canadian Resident Common Shareholder will realize a capital gain (or capital loss) on the disposition of the Common Shares equal to the amount by which the Canadian Resident Common Shareholder’s proceeds of disposition, net of any costs of disposition, exceed (or are less than) the adjusted cost base to the Canadian Resident Common Shareholder of the Common Shares sold to Aimia pursuant to the Offer.
Taxation of Capital Gains and Losses
Generally, a Canadian Resident Common Shareholder will be required to include in computing its income for a taxation year one-half of any capital gain (a “taxable capital gain”) realized by it in that year. Subject to and in accordance with the provisions of the Tax Act, a Canadian Resident Common Shareholder must deduct one-half of the amount of any capital loss (an “allowable capital loss”) realized in a taxation year from taxable capital gains realized by the Canadian Resident Common Shareholder in that year, and any excess may be carried back to any of the three preceding taxation years or carried forward to any subsequent taxation year and deducted against net taxable capital gains realized in such years, to the extent and under the circumstances specified in the Tax Act.
The amount of a capital loss realized on the disposition of a Share by a Canadian Resident Common Shareholder that is a corporation may, to the extent and under the circumstances specified in the Tax Act, be reduced by the amount of dividends received or deemed to be received on the Common Shares (including any dividends deemed to be received as a result of the sale of Common Shares to Aimia pursuant to the Offer).
Similar rules may apply where a corporation is a member of a partnership or a beneficiary of a trust that owns Common Shares, directly or indirectly, through a partnership or trust. Canadian Resident Common Shareholders who may be affected by these rules are urged to consult with their own tax advisors in this regard.
A Canadian Resident Common Shareholder who is an individual, including most trusts, may have all or a portion of any capital loss on the sale of Common Shares pursuant to the Offer denied if the “superficial loss” rules in the Tax Act apply. This may arise where the Canadian Resident Common Shareholder (or a person affiliated with the Canadian Resident Common Shareholder for purposes of the Tax Act) acquires additional Common Shares in the period commencing 30 days prior to, and ending 30 days after, the disposition of the Common Shares pursuant to the Offer. Canadian Resident Common Shareholders are urged to consult their own tax advisors with respect to the “superficial loss” rules.
Similarly, a Canadian Resident Common Shareholder that is a corporation or trust may have all or a portion of any capital loss on the sale of the Common Shares pursuant to the Offer suspended if it (or a person affiliated with it for purposes of the Tax Act) acquires additional Common Shares in the period commencing 30 days prior, and ending 30 days after, the disposition of Common Shares pursuant to the Offer. A Canadian Resident Common Shareholder that is a corporation or trust is urged to consult its own tax advisors with respect to the “suspended loss” rules.
A Canadian Resident Common Shareholder that is a Canadian-controlled private corporation throughout the year (as defined in the Tax Act) may be liable to pay an additional tax (refundable in certain circumstances) on its “aggregate investment income” for the year, which is defined to include an amount in respect of taxable capital gains (but not dividends, or deemed dividends, that are deductible in computing taxable income).
stonemansion wrote:
Thanks! Generally speaking, the shares tendered will receive a more favorable tax implication than selling on the market?