– “Reportable transactions” are tax avoidance transactions that have one of the three following “hallmarks”: (i) the fees of the advisor or promoter are based or contingent upon a resulting tax benefit or attributed to the number of participants or those offered an opinion or advice; (ii) the advisor or promoter has “confidential protection” (i.e., participants have a legal obligation not to disclose the transaction to third parties, including the tax authorities); and/or (iii) any person, advisor or promoter receives “contractual protection” (i.e., any direct or indirect form of insurance against the tax risk of the transaction). – Certain corporations with assets of at least $50 million must report any uncertain tax positions reflected in their audited financial statements. – Penalties for non-disclosure can be significant and the limitation period of reassessment of taxes will not commence where there has been a failure to report.
Shareholder Considerations
DISPOSITION OF TARGET SHARES – The disposition of shares to the acquirer is typically a taxable transaction to the shareholder. > Canadian residents include 50% of any capital gain in their income. > A non-resident is typically not subject to Canadian tax on the disposition of publicly listed shares unless at any time in the previous 60 months the non-resident (taking into account non-arm’s-length persons and certain partnerships) held 25% or more of shares of any class of the target and, at that time, the shares derived more than 50% of their value from Canadian-situated real property (including oil and gas and mineral properties). – Tax deferral can be provided to selling shareholders when the consideration includes equity of a Canadian corporation. > On a share-for-share takeover bid, when a Canadian corporate acquirer (Bidco) issues treasury shares to the selling shareholders, there is an automatic tax deferral for most shareholders dealing at arm’s length with Bidco. > When consideration includes both treasury shares and cash or other assets, tax deferral is available by joint election of the selling shareholder and Bidco up to the extent of the value reflected in the Bidco shares. ○ In both of these cases, Bidco will inherit a lower tax cost in the target shares, which may be disadvantageous in some circumstances, such as when a bump is planned. ○ No tax deferral is available when shares of the Canadian target are exchanged for shares of a foreign acquirer or when a subsidiary delivers shares of its parent as consideration. ○ When consideration would otherwise include publicly listed shares of a foreign acquirer, tax deferral may be achieved through the use of “exchangeable shares.” Bidco would
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Canadian Mergers & Acquisitions
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