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TSLA five-for-one split in a TFSA

lukex4

Member
Oct 30, 2013
190
673
Montreal
After seeing the headlines about a 5 to 1 stock split I was very happy but I became a little worried when I read the full press release:
Tesla IR said:
Tesla, Inc. (“Tesla”) announced today that the Board of Directors has approved and declared a five-for-one split of Tesla’s common stock in the form of a stock dividend to make stock ownership more accessible to employees and investors. Each stockholder of record on August 21, 2020 will receive a dividend of four additional shares of common stock for each then-held share, to be distributed after close of trading on August 28, 2020.

TFSA are subjected to a 15% withholding tax on dividends for US stocks. Are we at risk of losing 15% of the new issued stocks? That's... frightening to say the least.

Anyone have any experience with such "dividend" stock split? My post in the Investor thread.
 
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lukex4

Member
Oct 30, 2013
190
673
Montreal

glide

Active Member
Jun 6, 2018
3,676
3,840
USA
After seeing the headlines about a 5 to 1 stock split I was very happy but I became a little worried when I read the full press release:


TFSA are subjected to a 15% withholding tax on dividends for US stocks. Are we at risk of losing 15% of the new issued stocks? That's... frightening to say the least.

Anyone have any experience with such "dividend" stock split? My post in the Investor thread.
It’s not a dividend. Just terrible reporting.
 

lukex4

Member
Oct 30, 2013
190
673
Montreal
It’s not a dividend. Just terrible reporting.

I wish it was just terrible reporting but there's a real difference between a stock dividend and a stock split. I agree that in almost all cases it doesn't matter. But for many people outside of the US, there are some taxes to be paid for any dividend from US stocks.

Over in the investors thread, many Europeans are wondering the exact same thing. For now there's a lot of unknowns. I'll be very happy if in the end it's the same exact thing as a regular stock split.

It is a stock dividend, not a cash dividend which would carry the tax implication. You're good.

Is there a reference on the CRA's website about that? I couldn't find any about stock dividend specifically.
 

Kabillyhop

Member
Jul 30, 2019
243
171
Toronto
I wish it was just terrible reporting but there's a real difference between a stock dividend and a stock split. I agree that in almost all cases it doesn't matter. But for many people outside of the US, there are some taxes to be paid for any dividend from US stocks.

Over in the investors thread, many Europeans are wondering the exact same thing. For now there's a lot of unknowns. I'll be very happy if in the end it's the same exact thing as a regular stock split.



Is there a reference on the CRA's website about that? I couldn't find any about stock dividend specifically.

I have no idea, but I've had stock splits several times and there is no tax implication. CRA taxes income and realized capital gains. Splits provide neither. The 15% withholding is from the IRS (not CRA). There is no income to withhold here.

If you are still uneasy about it, call your broker and they will explain it to you.
 
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lukex4

Member
Oct 30, 2013
190
673
Montreal
Just to illustrate that the dividend part can be tricky here's a post from a German investor : @Johann Koeber.

Of course can be totally different for our Canadian TFSA but still shows this can get messy... I messaged a tax attorney but I'm still waiting for their answer.

Johann Koeber said:
German situation:

My bank (CortalConsors) ist not yet sure how the stock dividend will be treated.Let's see if they come back to me.

The Landesamt für Steuern (IRS) suggests, it has to be taxed as dividend income.
This would be a catastrophe because the loss in stock value cannot be used to offset the dividend gains.

Unless the taxpayer can prove, that it was a stock split. This has to be proven according to the foreign law.

In 2014 Google had a similar situation and only after months, if not years of fighting, the IRS finally gave in. But the banks had deducted the 25 % tax; in the end the taxpayers got their money back - after years of waiting. So good luck with that.


My 'solution':

Prior to the 21st I will sell all my TSLA and sell way OTM Sept Puts. I am looking at $ 3,000 strikes. Then I can just wait to be putted or change back to shares after 24th.

Unfortunately the appreciation of my shares will be taxed. The rebought shares will have a new tax basis.
 

ben1628

Member
Jul 1, 2018
531
363
Brampton, ON, Canada
Just to illustrate that the dividend part can be tricky here's a post from a German investor : @Johann Koeber.

Of course can be totally different for our Canadian TFSA but still shows this can get messy... I messaged a tax attorney but I'm still waiting for their answer.

I deal with US stock market exclusively on my RRSP and TFSA, in TFSA, they just withhold 15% dividend for IRS. Stock split has no issue whatsoever, so rest assured! Just enjoy the ride up, I am :)
 

wanche

Member
Nov 14, 2017
307
140
Toronto
After seeing the headlines about a 5 to 1 stock split I was very happy but I became a little worried when I read the full press release:


TFSA are subjected to a 15% withholding tax on dividends for US stocks. Are we at risk of losing 15% of the new issued stocks? That's... frightening to say the least.

Anyone have any experience with such "dividend" stock split? My post in the Investor thread.
Don’t worry, you’re not making any money when stock splits, total value stay the same. Hold tight, $TSLA is just warming up, still at very early stage. Why? Counting percentage of ICE and EV on the road, you will get it. Most of financial advisor has no idea what Tesla is doing, ignore them.
 

ben1628

Member
Jul 1, 2018
531
363
Brampton, ON, Canada
Don’t worry, you’re not making any money when stock splits, total value stay the same. Hold tight, $TSLA is just warming up, still at very early stage. Why? Counting percentage of ICE and EV on the road, you will get it. Most of financial advisor had no idea what Tesla is doing, ignore them.

We know the potential because we drive a Tesla. Still put a smile on my face when I am on the driver seat.
 

lukex4

Member
Oct 30, 2013
190
673
Montreal
I deal with US stock market exclusively on my RRSP and TFSA, in TFSA, they just withhold 15% dividend for IRS. Stock split has no issue whatsoever, so rest assured! Just enjoy the ride up, I am :)

Don’t worry, you’re not making any money when stock splits, total value stay the same. Hold tight, $TSLA is just warming up, still at very early stage. Why? Counting percentage of ICE and EV on the road, you will get it. Most of financial advisor has no idea what Tesla is doing, ignore them.

As Tesla isn't doing a stock split (it's a stock dividend) this is causing a lot of issues for many people in Europe.

But seems that yes Canadians would be exempt of any dividend withholding taxes in a TFSA based on the very informative research of a new user @st_lopes (can read his post here).
 
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wanche

Member
Nov 14, 2017
307
140
Toronto
As Tesla isn't doing a stock split (it's a stock dividend) this is causing a lot of issues for many people in Europe.

But seems that yes Canadians would be exempt of any dividend withholding taxes in a TFSA based on the very informative research of a new user @st_lopes (can read his post here).
I think you misinterpret 'dividend' in their announcement. It's clearly 5 for 1 split, your total investment value stay the same with 4 extra shares for each share you had at 5x lower price per share.
 

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