In the above case - you are 100% right.
However, the mechanism of taxation is not as simple as that in some countries under certain accounts. I wish it was.
We are completely on the same page that the total value of the stock has not changed pre- and post split in the eyes of the shareholder ie 1 X1500 & 5X300 both = $1500. The trouble is how the technicality of the tax code is applied to the word "dividend" in countries outside the US.
Below is my - admittedly non-accountant understanding of this:
For example in Canada we have a TFSA account that allows capital gains to grow tax free, once the money is in the account. For regular retirement accounts (RRSP but not TFSA) Canada has a tax treaty with the US that is in place for anything called a dividend, where the US government withholds 15% of the "dividend", but it is recoverable / recovered to the Canadian taxpayer - so the net result is zero.
for TFSA accounts, the 15% US withholding tax is not recoverable - this is what some fear could result in net taxation. FWIW - TFSA accounts don't tax capital gains - but they also don't allow you to offset losses either.
So even though there is no net change to the total pie pre and post stock split - the word "dividend" could trigger this weird tax event for people in a number of countries.
Im looking for some concrete evidence that this would not be the case. i.e a past similar stock ? or a CRA bulletin ?(our equivalent to the IRS) bulletin.
I am hoping to find some concrete evidence that Im wrong on this - otherwise I would need to take steps with my shares to solve for this.
Of course - Not advice, and I invite evidence based corrections to my understanding of this.
Realizing this is my first post so I am providing some background. I’ve been a shareholder since SCTY was acquired by TSLA. At that time, I was one of those investors that shied away from psychologically expensive stocks. I wanted to buy something Elon was involved with, and couldn’t bring myself to spend hundreds for TSLA when I could spend tens for SCTY. After all I could buy more shares of one, own more of the pie (absent actually looking at what the available float was for each). Since then, I’ve bought significantly more shares, LEAPS, and have sold premium through options wheels. All that to say, I am a strong believer of the mission, a Teslannaire, and really appreciate all of the amazing content generated by this community.
I am Canadian. I am a CPA, CA (Canada has multiple legacy accounting designations) with a specialization in Tax. I professionally practice in corporate taxation, dabble in personal taxation, and am employed by the largest accounting firm in the world. This post is aimed at my Canadian compatriots
@Tes La Ferrari @Artful Dodger (and others that I have missed). The vast majority of my holdings are in TFSAs (save for options wheeling gains which are all on unregistered margin accounts). After several years of lurking, I felt it time to give back to this community.
That said, this is not advice, but it is how I will be treating my personal holdings.
TL;DR: This is not a taxable event to Canadians. This should not give rise to a 15% withholding tax on distribution of new shares.
CRA (our IRS) Interpretations
IT882-R2 Stock Dividends
ARCHIVED - Stock dividends - Canada.ca
All described dividends in this interpretation bulletin relate to scenarios where shareholders are receiving additional value or benefits in the form of additional shares, either of the company in question or in-kind of another company (occurs in spin offs or in share capital reorganizations). Where the distribution is in the context of a stock split, it points to IT-65.
IT-65 Stock Splits and Consolidations
ARCHIVED - Stock splits and consolidations - Canada.ca
The contemplated transaction falls squarely into the definition described in this document.
“Where all the shares of a class of stock of a corporation are replaced by a greater or lesser number of shares of the same class of stock of the same corporation in the same proportion for all shareholders, in circumstances where there is no change in the total capital represented by the issue [...]”
In such an event, there would be no deemed acquisition or disposition of shares. In other words, no taxable events. It also points to how you would derive your adjusted base on the new shares, though not relevant to TFSA holdings, the gist is that you would split the cost basis of your original holdings over your new holdings.
Court Cases
There are several Canadian court cases dealing with share distributions, and they tend to lean in the same direction. Unless there has been a clear conferral of additional value to shareholders, there is no taxable event. Without a taxable event, you don’t get in to withholding requirements.
Other Considerations
Where shareholders would have the OPTION of receiving either cash or shares as part of the transaction, even if they opt for shares, there would be taxable event. Conceptually, since the shareholder has the choice to receive cash, this would then be considered a deemed disposition. This is not the case here.
Conclusion
Absent there being additional details on the structure of the stock split, this does not appear to be a taxable event and should not be subject to the 15% withholding tax typical to dividends received by Canadians from US entities.
In other words, per my read of available SEC filings and Tesla press release, combined with publicly available interpretation bulletins, searching available tax research databases available to me, and discussions with colleagues specialized in cross border personal tax matters, this is not a taxable event, and should not be subject to the 15% withholding tax typically applicable to dividends received by Canadian tax residents from US equities.
