# Info on US Foreign Spinoffs like KRAFT.........how NOT to pay tax on it



## warp (Sep 4, 2010)

Hi. 

Seems like there is always more you don't know, so I am posting this to help others on this Forum.

I am posting this to give info on foreign spinoffs that I have recently learned. 
I owned KRAFT shares and in october 2012, they spun off into 2 companies....Kraft foods group, and Mondelez, so I now own shares of both.

Upon receiving my T5, I immediaety knew that the figure for foreign dividends was wrong, being much higher than it should be. Looking into it saw that the shares I got in the spinoff were recorded as a TAXABLE foreign dividend, even though I knew that the IRS in the US had declared the spinoff as a "non-taxable event".

It turns out that in Canada, financial institutions are required to report this spinoff as a foreign dividend by law. What nobody knew, ( including myself), or told me, is that a taxpayer is entitled to elect to defer this foreign spinoff dividend from his or her tax return using Section 86.1 of the Canadian tax code, which I came across after much digging.

I am posting this here, to inform other members of all this , in case the same happens to you.
If you had a foreign spinoff make sure you check your T5 summary carefully. There were 4 foreign spinoffs in 2012 this applies to this, including Kraft, and ConocoPhillips.

Also in 2013.....you will have the same problem if you held Abbot Labs, like I did/do, and it had a spinoff in jan , 2013.

If any if this affects you...to to CRA.GC.CA and search for Section 86.1, or "foreign spinoffs" and follow the directions. As with all things tax....good luck!


----------



## Eclectic12 (Oct 20, 2010)

^^^^^^

I'd make it anytime there's a spinoff or structure conversion.

Back when the corporations were falling over themselves to convert to a trust structure, a letter from the broker identified that an ACB only (i.e. no capital gains tax) was a possible option but in some cases, I ended up with a capital gain tax bill. In those cases, the default option if specific instructions were not received was for a deemed disposition.


Cheers


----------



## caricole (Mar 12, 2012)

Watch the dummies from CRA, they cannot read, even their own letters and certainly not the letter where I made the choice according to 86.1

Resume: Spinoff Jan 1 2011

Reported on return for 2011, filed Mar 15 2012

Included letter of acceptance from the IRS and letter of acceptance of CRA plus MY LETTER making the choice according to art 86.1

Received Jan 2013, assesment "I did not report foreign income of 5.000$ and 1.900$ fédéral incometax to be paid immediatly, including INTERST of 60$ ( which is non deductible)

I phoned and read the 2 letters included in my return, they claim they never saw them and claimed they did not undrstand what they ment

Maybe they will revise the assesment, I give them another 2 weeks, if nothing develops it will be "OFFICIAL OPPOSITION TO A TAX ASSESMENT BY REGISTERD LETTER ( 90 days from Jan 4 2013)

Their problem is simple, they entered the figures from the T5.... 5.000$ foreign income but never read the 2 letters, included im my return, filed on paper

You can't ask this to the governement dummies in Ottawa :stupid::tongue-new:


----------



## warp (Sep 4, 2010)

Funny, I had the absolute same thought and concern. 

I just know that when I file my 2012 taxes, soon, and incluse a letter elected to take Section 86.1 to defer/ remove the "foreign dividend" amount included on my T% for the Kraft spinoff, the people at CRA will be clueless to what it means, even though they insist we do it.

I can just see getting my assessment for 2012 and seeing the same thing you did on your 2011 assessment letter, disallowing or ignoring the election to use section 86.1.

Your quote : "I phoned and read the 2 letters included in my return, they claim they never saw them and claimed they did not undrstand what they ment"

I have phoned CRA many times, and many times the agents are clueless and do not understand the questions I ask, let alone giving the right answer.

Our tax code is a mess, plain and simple.


----------

