PAY.PR.A : Tax Treatment of May, 2007, Dutch Auction Tenders

I love the use of the word “clarifies” in a press release. It invariably means that there’s been a monumental SNAFU and the issuing company is reversing its position.

High Income Principal and Yield Securities Corporation has issued a press release that “Clarifies Tax Treatment for Shares Tendered to Issuer Bid“:

proceeds received by former shareholders of who tendered their shares to the Dutch auction held in May 2007 should be treated as proceeds of disposition. The amount by which the proceeds of disposition exceed (or are less than) the shareholder’s adjusted cost base of the tendered shares will result in a capital gain (or loss) to the tendering shareholder.

This innocuous seeming press release, with its use of the word “clarifies” in the headline, led me to look up the April 20, 2007, Issuer Bid Circular on SEDAR, which stated:

Individual Shareholders who sell their Shares to the Company pursuant to the Offer will be deemed to receive a taxable dividend on the Shares equal to the amount by which the Purchase Price exceeds their paid-up capital for purposes of the Tax Act. The Company estimates that the paid-up capital per Share is approximately $18.20. This dividend will be subject to the gross-up and dividend tax credit rules applicable to taxable dividends received by individual Shareholders from taxable Canadian corporations, including the recently enacted enhanced dividend gross-up and tax credit where the deemed dividend has been designated as an eligible dividend by the Company. The Company will notify Shareholders, in accordance with the Tax Act, of the extent to which the deemed dividend is an eligible dividend.

In addition, such Shareholders will be considered to have disposed of each of their Shares for proceeds of disposition equal to the amount by which the Purchase Price exceeds the deemed dividend arising on the disposition. The Shareholder will realize a capital gain (or capital loss) on disposition of Shares equal to the amount by which the Shareholder’s proceeds of disposition, net of any reasonable costs of disposition, exceed (or are less than) the Shareholder’s adjusted cost base of the Shares sold to the Company pursuant to the Offer.

According to a May 31, 2007, Press Release:

Based on the final report provided by the depositary for the Offer, 224,644 preferred shares have been deposited and not withdrawn. Pursuant to the terms of the Offer, HIPAYS determined the purchase price to be $25.90 per preferred share (the “Purchase Price”) to put it in a position to take up the maximum number of preferred shares deposited to the Offer for an aggregate purchase amount of $5,818,279.60.

This buy-back was reported on PrefBlog at the time

Maybe I’m being a little mean about publicizing all this … I wouldn’t even have reported the press release if it hadn’t been for the word “clarifies”. Come on, guys! You screwed up! Show the grace to admit it!

One Response to “PAY.PR.A : Tax Treatment of May, 2007, Dutch Auction Tenders”

  1. […] PAY.PR.A was last mentioned in February 2008. […]

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