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Message: Tax Implications - My Thoughts…
Tax Implications - My Thoughts…
With reference to Notty’s comments posted on Mar 29, 11 08:32PM
My knowledge of the subject is limited to the experience I gained by being a shareholder of three companies which merged or were taken over in recent years.
(1) Lundin - EuroZinc
On Oct. 31, 2006 Lundin Mining Corp. and EuroZinc Mining Corp. completed their previously announced merger. Under the terms of the merger each EuroZinc share was exchanged for 0.095 Lundin shares and $0.0001 in cash. This transaction was considered a taxable event for Canadian income tax purposes. However, it was possible to defer some or all of any tax resulting from the share exchange by jointly filing with Lundin a Tax Election Form and submitting the Tax Election Form to the Canada Revenue Agency.
Shareholders meeting the following criteria were not required to file the Tax Election Form:
- You are non-residents of Canada (certain exceptions apply)
- You held all of your EuroZinc shares in an RRSP, RRIF, etc. or other tax-exempt plan
- You realized a tax-loss as a result of the disposition of your EuroZinc shares
Lundin was truly magnanimous in helping their shareholders to comply with the joint filing requirements: They negotiated a modified Tax Election Form, supplied us the Forms, instruction booklets, negotiated extension of the deadline, set up a dedicated Technical Assistance Hotline, fax, website, and a designated lawyer was available during business hours Monday to Friday. You will need all the help you can get when you have to calculate adjusted cost base for shares you have accumulated over the years.
(2) Sherritt - Dynatec
On June 14, 2007 Sherritt acquired all the common shares of Dynatec Corporation, whereby shareholders of Dynatec received 0.19 of a Sherritt common share and 0.0634 of a common share of FNX Mining Corporation Inc. (FNX) - which were owned by Dynatec prior to the acquisition – for each of their Dynatec shares.
Sherritt set up a Tax Election Website, which was provided to assist former Dynatec shareholders in making a joint election with Sherritt International Corporation to obtain a full or partial tax deferred “rollover” for Canadian Income Tax purposes.
The tax election process is time sensitive. Deadline for sending the Tax Election Worksheet to Sherritt was extended to June 15, 2008. The Deadline to file the Tax Election Form to the tax authorities for all shareholders was set at December 13, 2007 even for those who would file their tax returns for the calendar year 2007 on April 30, 2008. I have screwed up the filing date and was fined well over thousand dollars for late filing. (Chalk it up as student fee for U of HK).
Sherritt legal department’s references:
- Federal Tax Election Form (T2057) PDF 172k
- Quebec Tax Election Form (Tp-518-V) PDF 40k
(3) Quadra and FNX Complete Merger
On May 21, 2010 Quadra Mining Ltd. ("Quadra") (TSX: QUA) and FNX Mining Company ("FNX") (TSX: FNX) announced that that they have completed the merger of the two companies. The combined company is named Quadra FNX Mining Ltd., trading under the symbol QUX. The merger was structured as a court-approved plan of arrangement under the Business Corporations Act (Ontario) pursuant to which Quadra has acquired all of the common shares of FNX. Former shareholders of FNX received 0.87 common shares of Quadra and $0.0001 for each common share of FNX.
I learned about the merger thru’ the press and media and assumed the usual documentation will be sent to me by the new company via mail. After some waiting I contacted Quadra FNX and was told that the full documentation was mailed to me, and yes, they did a set up a Tax Election Website, but it has been shut down after the Filing Deadline. So this is for me still work in progress, with another late filing fee looming in the future.
Summing up:
In my view, Mergers and Buyouts are usually mean problems for shareholders of the acquired company. Even with the help of the acquirer there is a great deal of effort involved in generating all the information needed to complete the Tax Election Form(s). E.g.: Both EuroZinc and Dynatec started up as penny-stocks and a lot of share purchases were made during the accumulation stage before they became multi-baggers, so it takes plenty of time to calculate the adjusted cost base, etc.
There is no fee for filing a Tax Election Form before the Deadline.
In the future I would rather sell my stocks in company that is about to be merged or taken over, provided it can be done without significant capital loss or opportunity loss than face another Tax Election Form calamity.
To add to my problems is the fact that neither CMM nor the White Tiger measure up to the standards of Lundin or Sherritt.
I was cautious enough and also lucky to sell about half of my CMM holding on the 7th at $0.77 . As for the balance I will just have to wait until receive the document package from White Tiger before I can make a decision.
Cheers,
durban1
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