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Imvescor to MTY Food Group Amalgamation

unknown

MTY Food Group MTY.TO amalgamated with Imvescor (IRG.TO) this month. My broker registered the trade in my investment account in this manner

Sold IRG - 5000 shares, $19,998.70
Rec'd MTY - 313 Shares - $15,870
Rec'd cash in lieu of fractional shares - $23.07

MTY indicated to me that I should only have a capital gain on the cash portion being the difference of $4128.70 +$23.07 or $4151.77

Did anyone else figure out a way to do this? I've been scratching my head for 2 weeks!

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Quicken Harold

Hi Mike, appreciate your question.

Which version of Quicken are you using? Is it for PC or Mac?

Are there any split shares in the sale?

If you are needing some advice on the cost, I would refer you to your broker.

Please let us know so that we can best help you.

Respectfully,
~ Quicken Harold.

NotACPA

Hi Mike, appreciate your question.

Which version of Quicken are you using? Is it for PC or Mac?

Are there any split shares in the sale?

If you are needing some advice on the cost, I would refer you to your broker.

Please let us know so that we can best help you.

Respectfully,
~ Quicken Harold.

Also, are you in the US or Canada? In the US it's unlikely that this would be a taxable transaction ... and this would be recorded as a "Corporate Acquisition" in one of the higher versions of Q. Only the apparent sale of the fractional share "Rec'd cash in lieu" would be taxable.

If you go to the website for either company, there should be some info re: the tax aspects of the transaction.

unknown

Hi Mike, appreciate your question.

Which version of Quicken are you using? Is it for PC or Mac?

Are there any split shares in the sale?

If you are needing some advice on the cost, I would refer you to your broker.

Please let us know so that we can best help you.

Respectfully,
~ Quicken Harold.

HI Harold, sorry, I didn't get a notification of your response. I'm on a PC. I had 5000 shares Imvescor and my account was credited 19,998.70. I was credited 23.07 in lieu of .4455 fractional shares of MTY, and was debit $15,870 for 313 shares of MTY. I don't know about split shares. I don't know how to post this in quicken, or how to accurately reflect my cost basis.

q_lurker

@Mike: I hesitate to reply as this seems to relate more to Canadian practices and I am not familiar with their rules and regulations. So take any of the following with a grain of salt.

What I gather from online info about this deal is that the intent is for you to receive cash and shares.

Under the terms of the Transaction, Imvescor shareholders will receive approximately $50 million in cash and the remainder in common shares of MTY, equivalent to $0.8259 in cash and 0.0626 common share of MTY for each Imvescor Share held, such that the aggregate consideration paid to Imvescor shareholders will consist of approximately 20% in cash and approximately 80% in MTY common shares.

For your case with 5000 shares to start with, this would seem to become $4,129.50 cash and 313 shares of MTY. You seem to be talking about $4,128.70 cash and 313.4455 shares (before the cash-in-lieu consideration). Those are probably close enough but I am not clear on the differences. The share difference seems to be due to the 0.0626 value being rounded; The cash difference I don't understand.

In the US for this type of transaction (sometimes referred to as a cash-to-boot deal), the cash received is usually treated in one of three ways: 1) Not subject to capital gains, 2) partially subject to capital gains, or 3) fully treated (100%) as capital gains. The distinction is made based on your cost of the original shares - 1) if your shares were relatively expensive meaning no current gains, 3) if your shares were relatively cheap meaning you already have more gains than the cash you are receiving, and 2) for an in-between cost. You've described your situation as case 3 where all the cash received is being treated as capital gains. I am on no position to validate or discredit that assessment.

For a comparable US transaction where all the cash received (not including cash-in-lieu) is to be considered taxable capital gains, I frequently recommend the following sequence.

Determine your total cost basis for the 5000 shares of IRG.
Sell those shares for a total sale of cash received (4,128.70 or 4,129.50 as you deem correct) plus the original basis. This will generate in Quicken the cash received as capital gains.
Buy the 313.4455 shares of MTY for the original basis you had in IRG. This will leave that $4,128.70 (or similar value) as cash in your account.
Two more transactions: Remove Shares - 313.4455 shares of MTY; Add Shares - 313.4455 of MTY. For the Add Shares you will specify the cost basis to match the cost basis of the 313.4455 shares you just removed equal to the original cost basis of the IRG holding. You will also specify the Acquisition Date to match the original acquisition date of the IRG shares. This last pair of transactions serve to get the holding period correct for when you do sell the MTY shares.
Sell the 0.4455 shares of MTY for the $23.07 cash-in-lieu amount. Only some of that $23.70 will add on as additional capital gains; the balance will be a reduction in the overall basis of the MTY shares.

(Note: if the IRG holding had been acquired in separate lots (purchases at separate times, you might need to treat each lot separately, especially at the Add Shares point in part 4.)

Based on common US circumstances, I do not see a justification for the $15,870 new basis for the MTY holding of 313 shares.

HTH

Tom Young

Clearly there were US shareholders involved in these companies as MTY Food Group issued a Form 8937: https://mtygroup.com/wp-content/uploads/2018/04/8937-FORM-MTY-GROUP.pdf

So for your 5,000 shares of IRG you received 5,000 x 20.14% x $4.10 =
$4,128.70 in cash and you received 5,000 x .79.86% x .0785 =
313.4505
shares of MTY. The Form 8949 recommends a per share fair market value of $50.69 for the MTY stock which works out to
$15,888.81.

For US tax purposes the Form 8937 suggests the "usual" stock plus cash rules should be observed, which means that:

1)For EACH LOT of your stock that you gave up you need to determine gain or loss based on the "proceeds" of the sale (cash per share + FMV of stock received) vs. your basis in that lot.

2)Losses are NOT recognized in your tax return, they do not offset gains on "gain" lots.

3)Gains ARE recognized but only up to the LESSER of cash received or the gain as calculated per 1 above.

4)For each lot your basis in the stock of the new company is: Basis in lot of old company tendered - cash received + gain recognized.

5)The holding period of the each lot tendered of the old stock carries over to the new lot received of the new stock.

6)You then recognize gain or loss on the fractional share sold via the cash in lieu.

For your 5,000 shares and using the suggested $50.69 fair market value of your stock the result is that you received, i.e., "proceeds", of about $4.00 per share.

If Canadian tax law has similar provisions and you have many different lots then you almost certainly have to do all your calculations outside of Quicken and then DERIVE a basis to use for the sale of the stock tendered to come to the correct gain, and the correct cash. Then do a series of "Add" actions to get your new stock basis correctly stated, by lot.

ASSUMING you only had one lot of stock and ASSUMING that Canadian tax law is similar to US tax law and ASSUMING that your broker has actually come up on his own the correct basis for the new stock I can come pretty darn close to your reported numbers by deriving your original basis in IRG at $3.177 per share, i.e.,

Total Proceeds
$4,128.70 +
$15,888.81 =
$20,017.51. (Maybe a broker fee has been deducted?)

Gain
1) $20,017.51 -
$15,885.00
(5,000 x $3.177) =
$4,132.51
2) $4,128.70 (Cash)

Reported gain is $4,128.70 as it's smaller than "actual" gain.

New Basis in 331.4505 shares
$15,885.00 - $4,128.70 (cash) + $4,128.70
(gain) =
$15,885.00

New Basis in 331 shares after sale of fraction
$15,885.00 -
$22.83

=
$15,862.17

If this was my personal situation as a US shareholder I'd:

1) Do a Remove of the IRG stock
2) Do an Add of the IRG stock with the same holding period and a $0 basis
3) Sell the IRG stock for $4,128.70. That would result in correct gain and correct cash
4) Do an Add of the 331.4505 MTY shares with the same basis as the IRG stock I sold and a basis of $15,885.005) Sell the .4505 shares of MTY for $23.07; Quicken would calculate a $22.83 basis

I think the first thing you need to do is to understand EXACTLY what the correct Canadian tax accounting is for this transaction and then sit down and work out how you're going to get that properly recorded in Quicken. Don't forget the power of the Add and Remove actions to get your accounting correct.