# Tax Question



## Xoron (Jun 22, 2010)

My Father In Law owned a stock (Petrolifera) which was traded on the TSX. In March of 2011, there was some sort of reoganization / buy out / ????. On the statement for March, I see this transaction:

Mar 28 *Acquisition* xxx shares Gran Tierra Energy Inc Value $yyyy
Mar 28 *Disposition* xxx shares Petrolifer Petroleum Value $yyyy
Mar 31 CIL Gran Tierra Energy $yy Credit.

This wasn't a transaction that my FIL made, the transaction was a forced change in shares by Petrolifera. 

The value of the Acquisition and Disposition were the same.

Does this transaction constitute a taxable event? I know when there are splits (up or down) or a renaming, they are not taxable. But will I need to do the Capital Gains / Losses for the 2011 tax year? My first guess is that it isn't taxable, but anyone else out there know for sure?


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## Eclectic12 (Oct 20, 2010)

Xoron said:


> My Father In Law owned a stock (Petrolifera) which was traded on the TSX. In March of 2011, there was some sort of reoganization / buy out / ????. On the statement for March, I see this transaction:
> 
> Mar 28 *Acquisition* xxx shares Gran Tierra Energy Inc Value $yyyy
> Mar 28 *Disposition* xxx shares Petrolifer Petroleum Value $yyyy
> ...


Whenever I've had a similar transaction, the broker sent a letter indicating the options. Some of the options were:
a) non-taxable or deemed disposition with the default as non-taxable (i.e. adjust the ACB for the new shares and move on) 
b) non-taxable or deemed disposition with the default as deemed dispostion (i.e. report any CG or CL on tax return and adjust new shares ACB).
c) only a non-taxable event.

Where there was more than one option, there was a deadline to call the broker with instructions - if the default option was not the desired one.
So even if a non-taxable event was possible at the time, it may no longer be.


Did you find any letters? Is there a broker you can call? What about calling the new company's investor phone number?


The default of deemed disposition irritated me when I had some stock that converted to a trust. I was on vacation and didn't see the broker's letter until about two weeks after the deadline .... 


Cheers


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## Xoron (Jun 22, 2010)

Eclectic12 said:


> Did you find any letters? Is there a broker you can call? What about calling the new company's investor phone number?


Eclectic12: Thanks for the info. I don't remember seeing any letters about this, but I'll look next time I'm over there.


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## humble_pie (Jun 7, 2009)

in my experience buyouts, spinoffs & major reorgs are to be handled on a one-on-one basis, by directly consulting the documentation that the parties involved must supply to their shareholders. 

the taxation consequences of your relative's events are, or should be, perfectly spelled out in documents sometimes entitled memorandums of agreement. These are filed either on the company's website or else on sedar or both.

in addition, hard copies of these documents would have been mailed to your family member.

investor relations at the new firm should be able to guide you to online copies of this documentation. It may be necessary to inquire higher, ie closer to the chief financial officer (irs in small firms usually report to the cfos.)

ideally, companies being bought out endeavour to obtain favourable tax terms for their shareholders, who will surrender their old stock & receive new stock or cash or a mix of the two. Ideally, the cost base of the old stock becomes cost base of the new & no taxable event occurs at the time of a takeover.

in reality many merge operations are not clean-cut, which is why the tax treatment should begin by studying the pertinent documents. Sometimes, for example, it is necessary for shareholders of the old corporation to file special forms at the time of the merger requesting cost base rollover adjustment.

imho a dangerous approach is to seek advice in an anonymous message forum. Every takeover is structured in a unique manner.

*edit* to say: all documentation regarding takeovers, mergers etc will be filed without exception on sedar. Usually also available on a company's website.


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## Xoron (Jun 22, 2010)

humble_pie said:


> imho a dangerous approach is to seek advice in an anonymous message forum. Every takeover is structured in a unique manner.


I find everyone on this forum very helpful and well informed. So I appreciate all the help for sure. That being said, I wouldn't take everything said here as gospel  I'll certainly do my own due diligence on the tax implications, but figured the smart users on CMF would have pointers on where to look 

Again thanks for the pointers, I'll have to make a few calls on this one.


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## Eclectic12 (Oct 20, 2010)

humble_pie said:


> in my experience buyouts, spinoffs & major reorgs are to be handled on a one-on-one basis, by directly consulting the documentation that the parties involved must supply to their shareholders.
> 
> the taxation consequences of your relative's events are, or should be, perfectly spelled out in documents sometimes entitled memorandums of agreement. These are filed either on the company's website or else on sedar or both.
> 
> ...


Maybe it will and maybe it won't. 

Some of the online documents for the stock to trust conversions that affected me were quite clear that the non-taxable option had been negotiated. 

However - as mentioned, since the default action was the taxable event and I missed the deadline for broker instructions, in my case the non-taxable was not an option.

Unless relatives sifting through my paperwork found the letter from the broker and assumed I'd missed the deadline, the only trigger to indicate this would be the annual buy/sell summary.


As for seeking advice on an anonymous board - it depends. If it is to find ideas of how to address this, with appropriate due diligence followup - then it's fine. I know I've seen info that has helped me track down what I needed.

IMO, it's more a disclaimer type situation. 

After all, more sources of info hopefully is better than "making it up as you go".


Cheers

*P.S.* My disclaimer is that the info I've provided is based on what I've experienced. I'm not a buyout/spinoff/re-org specialist. So double-check with the appropriate sources to confirm or find out what actually has happened.


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## Xoron (Jun 22, 2010)

Guess I have my answer, it is a taxable event:

http://www.grantierra.com/upload/ed...df?PHPSESSID=73a08456506a5ae01336876ea672ec52

A Petrolifera Securityholder that is a resident of Canada for purposes of the Tax Act who exchanges Petrolifera Securities for Gran Tierra Energy Shares and/or Replacement Warrants pursuant to the Arrangement will generally realize a* capital gain (or a capital loss) * to the extent that the fair market value of the Gran Tierra Energy Shares and/or Replacement Warrants received on the exchange exceeds (or is less than) the adjusted cost base of the Petrolifera Securities immediately before the exchange and any reasonable costs associated with the disposition.​
Thanks for the input Eclectic12 and humble_pie


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## humble_pie (Jun 7, 2009)

yes. For future reference some buyouts are structured so that shareholders can apply to roll cost base forward to new holding, ie for shareholders who so elect, a taxable event is not deemed to have occurred.

you can see from eclectic's message that he happened to miss one of these rollover opportunities.

there's a big cost for a company offering such choices because the administration is complicated. Therefore they are usually put forward only when shares are widely held in the public hand.

in your family case there were probably a small number of majority shareholders who, when they accepted the buyout deal in the first place, said they were content to declare the capital gains/losses & move on.

company would therefore not mount the cost of helping minority shareholders. QED.


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## Eclectic12 (Oct 20, 2010)

*@ humble_pie:*

Thanks for the giggle from the tagline quote. 

It livened up a frustrating work day. 


Cheers


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