– Acquisition of control of a company undertaking a spinoff (or of the subsidiary spun off) as part of the series of transactions that includes the spinoff results in loss of tax deferral. – Typically, a spinoff is effected only with the benefit of the advance income tax ruling from Canadian revenue authorities. SPINOUTS – When the acquirer wishes to spin out certain target assets to the selling shareholders (e.g., exploration stage resource assets in a more mature company), the assets can be packaged in a new company and the shares of that company spun out to shareholders as part of the acquisition. – The target will realize any gain in the assets being spun out. – The spinout can be a reduction of capital to shareholders when the target has sufficient capital. The reduction of capital will not be taxable, but will increase the gain on a sale of target shares. – Spinouts typically involve a number of intermediary steps and are undertaken in connection with a plan of arrangement.
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