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Hi,


I own a US stock which will distribute cash back to shareholders. The company lost money in the last few years but has lots of cash. They didn't say whether the cash will be distributed as "special dividend" or "return of capital". I understood that I will have to pay 15% withholding tax if it's considered a Special Dividend payout (because it's a US stock). But I don't have to pay 15% tax if it's considered "return of capital". I called my broker and read the company release but none can tell me what type of payout I will receive. I am trying to find out the tax implication of each scenario and whether I should sell before or after dividend date. I hope someone can help me out.

For example, let assume my average cost is $5 = the current trading price. The company will pay $1 on Dec 1st. So on the ex-dividend date Dec 2nd, the stock price will be adjusted by $1, for example, to $4 if it's still at $5 on Dec 1st closing. They also have a reverse-split afterward, so most likely the stock price will drop after the payout date.

My advisor told me to buy more stocks. I am LONG the company, but I am thinking of selling all my shares before the payout date and buy back on the dip after reverse-split took place. One important factor is that the stock is trading below it's book value (about 90% of its cash value). What would be better choice?

Thanks a lot!!!!
 

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How do you expect to get any kind of constructive response when you won't disclose exactly what it is you own? The only suggestion I might offer is to seriously consider selling; tax has got nothing to do with it, the reverse stock split is never a good sign.
 

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Call the investor relations department of the company you're talking about and ask them what sort of dividend payout they will be issuing.
 

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You imply this is a 'normal' operating company. I do not believe it is possible for 'normal' companies to pay ROC dividends. Those resulted from all the derivative products and income trusts, etc.

I would expect this to be labeled "special" because it is not going to be an ongoing thing, nor should it be included in the 'current dividend yield' calculations.

Presuming this is in a taxable account, you should expect the 15% to be withheld. Remember to recover the payment on your personal tax return. There is a line item for the calculation of the Federal tax. Remember to claim the rest on the Provincial tax calc form.
 
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