# US $ Stock dividend



## Newbee (Apr 4, 2011)

Hi, 
I received a T5 statement for US stock dividend. The stock of US company I invested in had a stock split in 2013 and I received a significant sum labeled on my investment income summary as stock dividend. Is this stock dividend taxable? 

Any advice is greatly appreciated.

Thanks,

Newbee


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## humble_pie (Jun 7, 2009)

Newbee said:


> Hi,
> I received a T5 statement for US stock dividend. The stock of US company I invested in had a stock split in 2013 and I received a significant sum labeled on my investment income summary as stock dividend. Is this stock dividend taxable?
> 
> Any advice is greatly appreciated



if you have a T5, the stock dividend is probably taxable. 

look at the number of the box on the T5 where the dividend amount appears. On the back of the tax slip will be a small table of instructions as to which line entry on the tax form should be used to enter the figure.

go to the tax form, find out what kind of income this line entry is, exactly.

in a worst case scenario the US stock dividend amount will be viewed by canadian tax authorities as "other income," ie 100% taxable. Ouch.

this is why i occasionally write that, sometimes, folks might be better off selling such stocks on the eve of their X-date. The stock will have run up because of the looming stock dividend, so investor will be able to take the runup as capital gains, ie only 50% taxable.

otherwise, if investor fails to jump off before the X date, it's often necessary to take the dividend payout as 100% taxable other income.

also - please don't forget that your T5 is probably in US dollars. You would need to convert the amount to CAD using either 1) the bank of canada noon rate on the payment date; or 2) the annual bank of canada average rate for 2013, which the tax authorities accept.

notice that *all* USD transactions must be reported as converted according to whichever methodology you choose. The taxpayer cannot wander back & forth between date-of-payment & annual USD/CAD conversion rates.


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## warp (Sep 4, 2010)

Newbee said:


> Hi,
> I received a T5 statement for US stock dividend. The stock of US company I invested in had a stock split in 2013 and I received a significant sum labeled on my investment income summary as stock dividend. Is this stock dividend taxable?
> 
> y advice is greatly appreciated.
> ...



Here is the correct thing to do.
I have had experience with this , both this year and in the past, and would like to help you. The first time it happened to me was a shock ,,,and I'm sure this is a shock to you too, and am glad to help.

Firstly---- exactly what stock/ company are you talking about?
Please post here to let us know, as there may well be a tax ruling already in place for you to NOT pay tax on this so-called dividend you see on your T5.
I think instead of "split", you mean to say that the stock has had a "spin-off"...and that you have received stock in the new spinoff company., ( and also have kept your stock in the old company as well). YOU probably did NOT receive any cash dividend at all.

In the US this would be considered a non-taxable spinoff. 
Here in Canada, it gets a bit confusing. You will need to file a paper return and declare on a letter to the CRA, that you are asking for a "section 86.1", for the dividend amount showing on your T5...( the exact amount will also show on your 2013 summary from your broker).

You will need to do a calculation to assess your original cost base on the original stock you held, and divide this cost base up between the original stock and the new stock you received with the spinoff. If I knew what stock/comapny it was, it would be easier for me to advise you. The info and calcualtion formula can be found at the CRA website...
CRA.GC.CA.................just type "section 86.1" in the search bar to find it.

After you do this calculation and include it in the letter you send with your paper 2013 tax return, decaring that you are taking a section 86.1 in relation to this dividend amount on your T5.....you can go ahead and DEDUCT that amount from your T5. ( you may have also had some other US stocks that paid you dividends...just dedect the amount from the spinoff on you T5 amount). I have actually written the amount I am dedecting right on my T5,,so the CRA guy looking at my return sees it, as well as on the letter I sent.

If you have any questions feel free to ask...but first tell us what stock you are asking about. There may already be paperwork at the company website, that you can print out, that makes this much easier for you, but again I will need to know what stock this is.
good luck


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## humble_pie (Jun 7, 2009)

such a valuable & helpful message from warp, please pay attention to it!

you will likely need to do the first steps i mentioned, in order to find out what kind of income your broker deems this dividend amount in your T5 to be.

after that, it may be possible to claim the exemption & the workaround as warp says.

as warp also points out, there could be information for canadian shareholders on the company's website. Some companies post helpful info, some don't. But always worth checking.

all this is one of the reasons i don't hold US stocks in outright ownership but i do hold em in synthetic option positions. Those (options) become straight capital gains or losses. I do have a couple of US stocks in rrsp though, where the current taxation consequences of corporate re-orgs such as spin-offs are of low or no importance.


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