It is very common for U.S. public corporations to “spin-off” their holdings in other US corporations, so that their shareholders own such holdings directly.
If properly implemented, a reorganization of this nature should be tax-free for US tax purposes as result of the application of IRC Sec. 355.
The Canadian Income Tax Act (“the Act”) has its own system for allowing “divisive reorganizations” to be implemented on a tax-free basis. In this country, they generally have to be structured as a “butterfly reorganization” under complex rules in paragraph 55(3)(b) of the Act, and related section. The shares to be spun-off would not be directly transferred to the shareholders of the distributing company. Instead, a more complex series of Read More