Nortel Class Action Settlement

by Tax Guy - Burlington Accountant on June 20, 2008 Print This Post Print This Post

If you received shares and cheque from the Nortel class action you may be wondering what the tax implication are.  Nortel certainly is not going to be forthcoming with their opinion on the matter and those running the lawsuit will probably not be in a position to offer assistance. 

While I’ll attempt to clarify certain tax treatments related to this settlement there are a number of unresolved issues with respect to the shares.  Word has it the CRA may release some guidance on this case in the fall but there may be many of you unaware of how any of this will be handled.  Keep in mind that you should consult your tax advisor before taking any actions outlined or implied in this article

There are two components of the Nortel settlement that may have different results depending on whether you held (or hold) the shares inside an RRSP or outside and RRSP.

Original Shares Held Outside An RRSP

Any amounts received by a taxpayer resulting from this class action would be considered the proceeds of a disposition and should be claimed in the year you sold the shares (unless that year is statue barred and you would then claim the capital gain in the current year).  In a nutshell the proceeds are considered a disposition that is a capital gain. 

The problem is that the shares complicate things.  If you still hold the shares is seems unfair to treat the shares as a disposition and determining the value of the shares is still an issue.  If you disposed of your shares, the treatment of the new issuance is perplexing.

The skinny here is that no one really knows what to do and are waiting for some direction from the CRA. 

Rumour has it that the CRA will release some infomration related to the Nortel settlment in the fall and we will post the results once they are available.  You subscribe to Canadian tax Resource via e-mail or in a news reader to receive this infomration when it is available.

Original Shares Held Inside An RRSP

If you originally held your shares inside an RRSP, you should be able to deposit the shares and cash to your RRSP without affecting your contribution room.  Again direction is required from the CRA as to how they would administer this and how you would provide you originally held the shares in an RRSP.

If you don’t place the funds & shares back into your RRSP the proceeds are taxed as a withdrawal.  So what do you do?  It remains an unanswered question for the CRA but if you place the shares and cash back in your RRSP the worst that can happen is that it affects your deduction limit for the year.  The receipt of the proceeds would be offset by your contribution.

At this point all you can do is wait and see.  Again you should consult your tax advisor before taking any actions outlined or implied in this article.

About The Tax Guy...

Dean Paley CGA CFP is a Burlington accountant and financial planner who services individuals and business owners locally, nationally and internationally. Dean has appeared in the National Post, Toronto Star and Metro News.

To find out more, visit Dean's website Dean Paley CGA CFP or connect via Twitter @DeanPaleyCGACFP.

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