Tesla, TSLA & the Investment World: the Perpetual Investors' Roundtable

[Curt Renz]

Realizing this is my first post so I am providing some background. I’ve been a shareholder since SCTY was acquired by TSLA...

Welcome to TMC.

 

[Mo City]

OK, I've been trying to ignore all this taxation stuff, but doesn't it really come down to:

1) For each share you own, you're getting 4 new shares at 0.20 * $X each
2) Each existing share is worth only 0.20 * $X, so it's lost value.

In other words, anything you might have "gained" on the new shares is balanced by the "loss" in value of the existing share.

How can that not be a wash?

Isn't it easier to say you are given 4 new shares for each share you own. This means the total outstanding shares is 5x what it was prior to the award. The market will then react by decreasing the share price down to ~20% of what it was prior to the 4 shares being given.

 

[jeewee3000]

OK, I've been trying to ignore all this taxation stuff, but doesn't it really come down to:

1) For each share you own, you're getting 4 new shares at 0.20 * $X each
2) Each existing share is worth only 0.20 * $X, so it's lost value.

In other words, anything you might have "gained" on the new shares is balanced by the "loss" in value of the existing share.

How can that not be a wash?

The Belgian Tax system does not care about you as an investor losing value. (No write-offs possible) They do however tax dividends. Not fair you say? They don't care.

The uncertainty for us Europeans is two-fold:
1. Are the extra awarded shares viewed as a dividend?
2. If yes (terminology in 8k SEC filing suggests that is the case), what value is attributed to the taxed dividends? For example if SP at split is $1500, are you taxed on $1200 or $0? (The argument for the latter being you are awarded 4 shares of $0 value that happen to start trading at $300 the next trading day)

As said before, I called my broker (Saxo Bank's Binck) about this and they said they got this question all day today. Will notify all of their clients soon, definitely before August 21st. Will post here when I know more.

 

[ThisStockGood]

What other countries can confirm to have the same issue? I've seen countries listed above but who can confirm.

Wow, I really am quite shocked!

Denmark here - I’ve contacted my bank NordNet and asked how they handle the dividend split regarding taxes. Haven’t heard from them yet but I will inform you when I do.

 

[vikings123]

The Belgian Tax system does not care about you as an investor losing value. (No write-offs possible) They do however tax dividends. Not fair you say? They don't care.

The uncertainty for us Europeans is two-fold:
1. Are the extra awarded shares viewed as a dividend?
2. If yes (terminology in 8k SEC filing suggests that is the case), what value is attributed to the taxed dividends? For example if SP at split is $1500, are you taxed on $1200 or $0? (The argument for the latter being you are awarded 4 shares of $0 value that happen to start trading at $300 the next trading day)

As said before, I called my broker (Saxo Bank's Binck) about this and they said they got this question all day today. Will notify all of their clients soon, definitely before August 21st. Will post here when I know more.

Wow I thought the US tax system was messed up. I still believe this is just brokers speaking out of ignorance and everyone will eventually reach the conclusion that this a non-event for tax purposes. It makes no sense that you should be taxed for the 1200.

Does AAPL stock split also result in a taxable event for you? Or is that different because the word “dividend” is missing?

 

[MP3Mike]

Does AAPL the stock split also result in a taxable event for you? Or is that different because the word “dividend” is missing?

I think that missing word is important. But maybe people can look back to the Eastman dividend stock split that happened September 15, 2011. This should be the same as it was. (Of course tax rules could have changed in the last 9 years.)

 

[joh01652]

Sorry to burst everyone's bubble, but we're still $200 lower than we were a month ago.

Agree.

I'm not feeling very celebratory because right after earnings the onslaught of pointless, basically slanderous FUD heaped upon Tesla by the media has been relentless, even more than average. Nothing positive/relevant to say about about the company or its execution at all while the stock gets walked down after an amazing quarter. And "consolidation" my a** or whatever nonsense media is babbling about, "investors taking profits" or whatever. Many other popular tech companies soared (are still soaring), even Ford is up. It's irritating. Marketwatch for the past few days, having no news to report on Tesla, had three or four days in a row of headlines saying something along the lines of, "Markets Gain New Highs While Tesla Falls/Struggles/Drops/etc"--that's it, nothing to say, just a worthless blurb to paint Tesla in a negative light.

I'll maybe feel like celebrating when TSLA is at around $2K/share, where it should be.

 

[Sudre]

I think things just got a little interesting. Can't wait to see how the open interest shakes out tomorrow. 69K Calls moved around with a strike of $1600 so I'd say if a bunch of those are left in the open interest basket tomorrow we have the absolute top THEY would like to avoid. It's going to be interesting to see if they can push this down just under $1500 by the end of Friday. Tomorrow this over 10% gain should have a few people scrambling to cover bets against the SP. Once that is done if buyers start to slack off the price will calm down.

Max pain is probably already in the upper 1400s if not higher. It opened at 1435. I have sold Iron Condor spreads well away from potential targets for some hopefully easy small potatoes money. My biggest worry would be an inclusion announcement and the Call side gets blown past.

Open interest... max pain this morning 1435

Todays volume...

 

[junas]

That's very bad news and creates a ton of uncertainty for me and many international shareholders. Looks like a devastating event for international stockholders who fall under similar rules. We have been at that point before when Elon declared to consider taking Tesla private which would have led to a similar squeeze out for international shareholders. Luckily that did not happen.

Since this sounds to be confirmed in Finland the likelihood that despite all logic the same applies in Germany is increasing while here the taxes will be automatically deducted from your bank account if the depot decides to do so. There is no negotiation and many including me would be forced to sell a ton of shares. From the 80% all shares taxed in Germany its about 26% which translates in 20% lost value.

That's literally a squeeze out for 20% of all shares you own to compensate for taxes you did not gain through a stock value increase. That will create quite some sell pressure and is definitely not intended from Tesla.

What other countries can confirm to have the same issue? I've seen countries listed above but who can confirm.

Wow, I really am quite shocked!

Just to clarify: This isn't 100% confirmed even in Finland, but just an initial interpretation by few tax/accounting professionals. Of course everyone is now digging the issue in more detail. The problem so far is lack of similar cases. There is no prior local example case where stock dividend has been paid to perform a similar stock split. It's more common to distribute stocks of other companies as dividend and rules are written based on that tradition. My major hope is that they'd take into account the deepest purpose of this TSLA stock dividend (= splitting).

 

[Artful Dodger]

Per the sage advice of @Right_Said_Fred Imma wait until we hear from somebody who actually knows this topic professionally.

They come, I'm sure of it. Prolly lurking here right now, just waiting for an excuse to post...

[Transmogrifier whirrs...]

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.

TA-DAAA!!

Cheers!

P.S. KPMG in North York? My neighbor growing up worked there in the '80s. Moved back home, recently he was Director of Ethics for our Provincial CA professional organization (lol, if they knew what we were doing at 17... )

 

[Zhelko Dimic]

If this really is and can be treated as a dividend, I would expect that stock opens the day after ex-day at 1/5 of the price. I mean, everyone that buys afterwards will not get the dividend, that's why you see dividends paying stock drop in price (miniscule) the day after ex-day. Now this means nothing when dividend payout is 1% of the stock value or below, but in this case, Tesla will pay out 80% of the stock value in the form os stock dividend.

Implications of this are that 4/5 of the Tesla float (counted by $ value, not number of shares), disappears between Aug 21st and Aug 31st, right? Share counts stays the same, but during that period it represents only 1/5 of the market cap of Tesla, and 4/5 of market cap are locked in Tesla's vault to be payed out after the Aug 28th to the record holders as of ex-day/record day. NO ONE has access to 4/5 of TSLA market cap for the purpose of trading, during this period.

Further implication is that because market cap becomes smaller, SP is easier to manipulate. We're back to $200-$300 and shorts can easier play their games again (for few days). However, cumulative interest built in TSLA is much higher now, and shorts will need to prepare for Aug 31st, so if they try to procure shares during this period, it's a lot more likely to create mad dash in prices upwards during this period. It could be real short squeeze. Imagine, 4/5 of the float disappears, and even if you wanted, you could sell only 1/5 of the value of your Tesla stock. Yes, during that week or so, that applies to us too. There is no-one that can provide enough shares for what market is used to.

Is this what Elon planned 2 years ago, when he talked about short burn?!? This fits SO WELL! I imagine because of all the problems at the time and twitter crisis, he had to give up on the event, as he was in the hot water already.
Now, 2 years later, this looks innocent enough...

I am at the loss to understand disagreement from known Tesla bulls. This is a good thing. I'm explaining how we may see huge, but huge price appreciation in the week of the Aug. 21st. And if my interpretation is correct, this may be why we've seen move today, and it's not done...
I did sell two covered calls for Dec. strike $3000 and $3500, and yes, I know I'm weak hands

 

[st_lopes]

[Transmogrifier whirrs...]



TA-DAAA!!

Cheers!

P.S. KPMG in North York? My neighbor growing up worked there in the '80s. Moved back home, recently he was Director of Ethics for our Provincial CA professional organization (lol, if they knew what we were doing at 17... )

Deloitte and in a COVID-19 world my office is wherever I can find a decent WiFi signal. Though I’ve worked in Montreal, Vancouver, and Toronto.

 

[avoigt]

Just to clarify: This isn't 100% confirmed even in Finland, but just an initial interpretation by few tax/accounting professionals. Of course everyone is now digging the issue in more detail. The problem so far is lack of similar cases. There is no prior local example case where stock dividend has been paid to perform a similar stock split. It's more common to distribute stocks of other companies as dividend and rules are written based on that tradition. My major hope is that they'd take into account the deepest purpose of this TSLA stock dividend (= splitting).

Thanks for clarifying and I fully agree we need solid and firm confirmation first.

A german source confirmed a similar situation as you described, unfortunately, therefore, my concern is growing.

I would vote for a separate room as US stockholders may not be impacted here but the truth is if worst comes to worst which we all do not hope we would have an impact and significant influence on the stock and therefore the conversation belongs IMO for the moment here.

 

[Bet TSLA]

Hey, did you guys notice that are at back at $1500? Who could have imagined that?

I did, last night. Looks like I wasn't optimistic enough for today -- I don't think I can stretch "near 1500" to 1554.76. We'll see how the Friday prediction goes. Still seems about right to me.

I was a bit surprised not to have seen any other predictions, but perhaps there were some from people I have on ignore.

Okay, so all speculation on what the split means aside, what are people's predictions for the close on Wednesday and Friday this week? Are we going up or down? How much?

I'm going to predict that in all the excitement we close near 1500 tomorrow, and 1580 on Friday. But I'm always the optimist.

My entire portfolio was up 36% today. Gotta love that leverage on a big up day! Seven digit up days are pretty rare for me.

 

[SpaceCash]

That's very bad news and creates a ton of uncertainty for me and many international shareholders. Looks like a devastating event for international stockholders who fall under similar rules. We have been at that point before when Elon declared to consider taking Tesla private which would have led to a similar squeeze out for international shareholders. Luckily that did not happen.

Since this sounds to be confirmed in Finland the likelihood that despite all logic the same applies in Germany is increasing while here the taxes will be automatically deducted from your bank account if the depot decides to do so. There is no negotiation and many including me would be forced to sell a ton of shares. From the 80% all shares taxed in Germany its about 26% which translates in 20% lost value.

That's literally a squeeze out for 20% of all shares you own to compensate for taxes you did not gain through a stock value increase. That will create quite some sell pressure and is definitely not intended from Tesla.

What other countries can confirm to have the same issue? I've seen countries listed above but who can confirm.

Wow, I really am quite shocked!

I highly, highly recommend relaxing and not stressing over antiquated, traditional verbage.
Everything about this stock split is standard, and its implications neutral to bullish

 

[Bet TSLA]

I am at the loss to understand disagreement from known Tesla bulls. This is a good thing. I'm explaining how we may see huge, but huge price appreciation in the week of the Aug. 21st. And if my interpretation is correct, this may be why we've seen move today, and it's not done...
I did sell two covered calls for Dec. strike $3000 and $3500, and yes, I know I'm weak hands

You're no doubt seeing disagreement because your speculation is moronic. Things don't work this way, and random ignorant guesses are a waste of everybody's time and effort.

Me, I just skipped over your post initially as more pointless speculating on things that can't possible be true. Please stop.

 

[dww12]

Nah, 2103.45. (Goes perfect with the 4:20 split we are getting.)

No, it’s 2020 and it will prove the simulation.
5/1/2020 - “stock too high”
5 for 1 split at 2020.

 

[NCAMIRE]

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.

Welcome to the TMC forum. I really appreciate the time you took to research and post this info considering your credentials. I was very worried of this possible 15% witholding tax as I have 90% of my holdings invested in TSLA in my tax free saving account (TFSA).

Normand

 

[avoigt]

I highly, highly recommend relaxing and not stressing over antiquated, traditional verbage.
Everything about this stock split is standard, and its implications neutral to bullish

Completely agree but can confirm to you its all but standard in certain countries and for German Tax authorities and from what we heard from Finland fits into the picture.

Let's wait until we know more.

 

[smorgasbord]

The Belgian Tax system does not care about you as an investor losing value. (No write-offs possible) They do however tax dividends. Not fair you say? They don't care.

The uncertainty for us Europeans is two-fold:
1. Are the extra awarded shares viewed as a dividend?
2. If yes (terminology in 8k SEC filing suggests that is the case), what value is attributed to the taxed dividends? For example if SP at split is $1500, are you taxed on $1200 or $0? (The argument for the latter being you are awarded 4 shares of $0 value that happen to start trading at $300 the next trading day)

As said before, I called my broker (Saxo Bank's Binck) about this and they said they got this question all day today. Will notify all of their clients soon, definitely before August 21st. Will post here when I know more.

Well then fine, if they don't care about the market value of the stocks, then you're getting shares with a par value of $0.001 each.

Pay taxes on that.