# Book Values when stocks split into multiple other stocks



## ITConsultant (Mar 5, 2014)

I originally had some shares of GOOG with about a 60% gain. When they split to GOOG and GOOGL, GOOG received a book value of 0, and the entire book value was transferred to GOOGL. I verified with RBC that this is indeed how the split was suppose to go as far as book value goes.

So if I were to sell GOOG I would have a massive capital gain (entire market value would be taxed as a gain), but if I just want to sell GOOGL I would have a bit of a capital loss. Whereas before you would have no choice but to pay tax if you were to sell some of your GOOG since it all had a gain.

From a tax perspective this seems like a good deal for me as it gives me added flexibility - but does this seem legit to you guys or could this be questioned by the CRA for instance if I were to sell some GOOGL and use it as a capital loss?


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## Eclectic12 (Oct 20, 2010)

This does not sound right ... anytime I've had a split into separate shares, part of the original book value went with one stock and part with the other.

For example, when Nortel was split off from Bell, 90% went with the brand new Nortel stock and 10% went with the Bell stock.


I don't own Google directly so I don't have any info on it.


Cheers


*PS*

If a book value or the more commonly used adjusted cost base (ACB) is zero, then whether the investor sells for $1 or $700, there will always be a capital gain equal to the sale price.

Again - this does not sound right as the previous stock was not free to buy.


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## humble_pie (Jun 7, 2009)

ITConsultant said:


> I originally had some shares of GOOG with about a 60% gain. When they split to GOOG and GOOGL, GOOG received a book value of 0, and the entire book value was transferred to GOOGL. I verified with RBC that this is indeed how the split was suppose to go as far as book value goes.
> 
> So if I were to sell GOOG I would have a massive capital gain (entire market value would be taxed as a gain), but if I just want to sell GOOGL I would have a bit of a capital loss. Whereas before you would have no choice but to pay tax if you were to sell some of your GOOG since it all had a gain.
> 
> From a tax perspective this seems like a good deal for me as it gives me added flexibility - but does this seem legit to you guys or could this be questioned by the CRA for instance if I were to sell some GOOGL and use it as a capital loss?




i don't own google shares but here's what i would do:

1) accept the broker's procedure on a tentative basis, subject to further checking; however it may very well turn out to be the correct procedure.

2) search on google's website. A reorg this dramatic would have plenty of documentation. There is likely more than one document explaining to US taxpayers how they are to calculate their cost bases. Such document wouldn't necessary apply to canadian holders of old GOOG, now GOOGL, but at least it would be a start.

i'd start by searching for the original news release that announced the stock split, then work forward from there.

if you're lucky, google even produced a release with info about how canadians could calculate cost base. I have seen US companies do that.

3) once you find the correct document, store it or print it, anyhow keep a permanent record. I myself keep a gains/loss ledger that's alpha by company, so i'd store my google document(s) with the rest of the google records in the file.

in fact, if i did own google stock, me i would open a 2nd spreadsheet, keeping the old one for GOOGL & dedicating the new one to GOOG.

these records are all the backup you'd need for the CRA.

if RBC is correct, it looks like you could indeed sell GOOGL for a small loss/profit/whatever, while keeping GOOG for a gigantic capital gain some day in the future. Interesting, huh? assuming the RBC protocol is correct, you would be able to get half your money out now, if you would so choose, without any capital gains whatsoever.

this google split was 100% engineered to favour the founders & principal shareholders. It occurs to me that getting half their money out right now - as GOOGL - without any capital gains consequences whatsoever, may have been a part of their Grand Design.

hoping you will let us know what google has to say for itself about cost base of the new shares.


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## Spudd (Oct 11, 2011)

Here's the answer:
https://investor.google.com/pdf/2014_form8937.pdf


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## Eclectic12 (Oct 20, 2010)

That's the same as I've experienced in the past (though depending on the amount contributed to the overall business, I've seen 30% - 70% allocations or similar to what was posted).

BTW - how did you find it? 
My searches were finding endless articles about how the share structure was concentrating the decision making power, with it's related "this is status quo" or "this is limiting investor input" arguments.


It puzzled me as like the year end tax documents, it's usually been a question of when the amounts would be determined then published and then it was relatively easy to find the breakdown.


Cheers


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## humble_pie (Jun 7, 2009)

Spudd said:


> Here's the answer:
> https://investor.google.com/pdf/2014_form8937.pdf



looks like a perfect find, although there is one important proviso for canadians! thankx Spudd!

all who are implicated, including GOOGL options traders, should view Spudd's link. It appears to be the official EDGAR filing from google. The text seems to be locked so i wasn't able to copy the pertinent paragraph. However it says that the original cost base of the old google class A shares is to be divided as follows:

a) 49.92% of original cost base shall be allocated to new GOOG class C issued shares;
b) 50.08% of original cost base shall be allocated to old GOOGL class A shares.

all that being said, we need to recognize that the above document applies to US shareholder/taxpayers. There is still a chance that the post-split cost base will be allocated differently for canadian taxpayers, in the eyes of the CRA. The reason is that the linked IRS document declares that the GOOG class A split took the form of a stock dividend. Historically, foreign stock dividends can have very messy consequences for canadians.

note to the OP: it would be doing us all a favour if you would please convey Spudd's link to RBC & ask them to comment further on their decision to allocate cost base the way they did (ie 100%/0%.)

it would also be useful if holders of GOOGL shares would kindly find out what their brokers are doing re cost base of old class A & new class C shares & let us know.


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## Spudd (Oct 11, 2011)

Eclectic12 said:


> BTW - how did you find it?


I didn't even have skin in the game, but I was curious. I followed Humble's advice to go to Google's investor relations site. It was not self-evident from the Google homepage, so I Googled for it.  Once there, I had to click around a bit, I think I eventually found the answer in the FAQ attached to their article about the stock split.


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## humble_pie (Jun 7, 2009)

i'm waiting on bmo but td is following the roybank example, which goes:

- old google class A which is now GOOGL will have 100% of the original cost base;
- new google class C which was issued recently will have a cost base of zero.

never mind what google says upthread, that's only for US taxpayers. Here in canada, it appears that google is one of those foreign stock dividend cases where the CRA has a mind of its own.

there might be a way to adjust cost base for new GOOG *if* google transmits certain documentation to the canadian transfer agent. If so, there would be forms for the investor to fill out, sez the big green.

i'm not one who would hold the breath, though. I don't believe that google cares a fig about its canadian shareholders.

in a worst case scenario, a foreign stock dividend can be 100% taxed as ordinary income as of the year in which it was paid.

at least the way they've fixed this GOOG split, there will mostly be large capital gains on new GOOG & these will be favourably taxed, plus they can be delayed into the future. Delayed as in Don't Sell Yet.


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## OnlyMyOpinion (Sep 1, 2013)

Just checked our TD Waterhouse April statement. The split is showing up on April 8:
20 GOOGLE INC CL-A GOOGL BV= $18,281.74 PRICE= 534.880U MV= $11,719.22
20 GOOGLE INC CL-C GOOG BV=0.01 PRICE= 526.660U MV= $11,539.12

So as noted above, the purchase cost is staying with the CL-A share and the CL-C have a $0 cost base. We bought these last June.


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