Yes, the reorganization as a Canadian public company is a taxable event for non tax exempt Canadian and US resident individual shareholders. As a result of the reorganization, there was a deemed disposition at fair market value for both Canadian and US tax purposes. Generally, the difference between the original costs basis and fair market value at time of deemed disposition is the amount of gain (U.S. and Canadian) or loss (Canadian only) to taxpayers as a result of reorganization. Closing prices on September 25, 2009 were C$30.60 on the Toronto Stock Exchange and USD$27.99 on the New York Stock Exchange respectively.
Please refer to Tax Considerations described in more detail in Registration Statement of Form S-4. Taxpayers should consult their own tax advisors.
Canadian Tax Considerations
Taxation of Canadian Holders. Generally, a Canadian resident holder of Tim Hortons Inc immediately prior to the merger ("THI USA") common stock will, for Canadian federal income tax purposes, realize a capital gain (or sustain a capital loss) to the extent that such holder's proceeds of disposition, net of any reasonable costs of disposition, exceed (or are less than) the adjusted cost base immediately prior to the Effective Time of the holder's THI USA common stock converted in the merger. For the purpose of computing such capital gain or capital loss, a holder will be considered to have disposed of the THI USA common stock for proceeds of disposition equal to the fair market value at the Effective Time of the common shares received therefore on the merger (herein referred to as "New THI common shares"). Such a holder will be considered to have acquired the New THI common shares at a cost equal to their fair market value as of the Effective Time.
Taxation of Non-Canadian Holders. Generally, THI USA stockholders who are non-residents of Canada for Canadian federal income tax purposes will not be subject to Canadian federal income tax in respect of any capital gain realized on the disposition of THI USA stock.
United States Tax Considerations
Taxation of U.S. Holders. The reorganization should be characterized for U.S. federal income tax purposes as a transaction in which U.S. Holders will recognize taxable gain, if any (but not loss), in an amount equal to the excess of the fair market value of the New THI common shares received in the merger over their tax basis in the THI USA common stock converted therefore. Shareholders recognizing a gain will have a basis in their New THI common shares equal to the basis in their THI USA common stock converted therefore plus the amount of gain recognized. Stockholders realizing a loss on the conversion will have a basis in the New THI common stock equal to the basis in their THI USA common stock converted therefore.
Taxation of Non-U.S. Holders. The holders of THI USA common stock who are treated as foreign persons for U.S. federal income tax purposes, including holders who hold directly and constructively more than 5% of the outstanding THI USA common stock, will not recognize taxable gain or loss on their THI USA common stock for U.S. federal income tax purposes.
Note: Impact of Wendy's spin of THI USA on Basis
Note: Wendy's International shareholders received 1.3542759 shares of Tim Hortons common stock for every share of Wendy's common stock held at the time of the spin-off.
Your tax basis in the Wendy's shares you owned immediately before the spin-off must be allocated between your Wendy's shares and the shares of Tim Hortons common stock you received in the spin-off (including any fractional share for which you received cash).
This allocation is based on the relative fair market values of your Wendy's shares and your Tim Hortons shares. U.S. federal tax law does not specifically identify how you should determine the fair market values of the Wendy's shares and the Tim Hortons shares after the spin-off.
There are several possible methods of measuring these values, including: (i) the opening trading prices of the Wendy's shares and the Tim Hortons shares on the first regular trading day after the Spin-Off (October 2, 2006); (ii) the average of the high and low trading prices of the Wendy's shares and the Tim Hortons shares on the first regular trading day after the Spin-Off (October 2, 2006); and (iii) the closing trading prices of the Wendy's shares and the Tim Hortons shares on the first regular trading day after the Spin-Off (October 2, 2006).
Common Shares |
Opening Trading Price on October 2, 2006 |
Average High-Low Trading Price on October 2, 2006 |
Closing Trading price on October 2, 2006 |
| Wendy's |
32.35 |
32.14 |
32.52 |
Tim Hortons (value per share) |
26.09 |
25.98 |
25.93 |
Tim Hortons (relative value*) |
35.33 |
35.18 |
35.12 |
*based on 1.3542759 distribution ratio