Taxable Spinoff

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DEFINITION of 'Taxable Spinoff'

A divestiture of a subsidiary or division by a publicly traded company, which will be subject to capital gains taxation. The subsidiary will become completely independent from the parent corporation, operating entirely on its own. To qualify as a taxable transaction, the parent corporation must divest through direct sale of the division, or the assets it contains. The profits made from the sale will be taxed as capital gains.

INVESTOPEDIA EXPLAINS 'Taxable Spinoff'

A taxable spinoff will bring in liquid assets to the company, usually in the form of cash. The downside of this transaction comes from the decrease in income from the capital gains tax. If a parent company wishes to avoid a taxation, they may consider a tax-free spin off. By distributing new shares for the division or prorating new stock to current owners, the company will be able to avoid any capital gains from divestiture.

RELATED TERMS
  1. Divestiture

    The disposal of a business unit through sale, exchange, closure, ...
  2. Tax-Free Spinoff

    A corporate action in which a publicly traded company spins off ...
  3. Subsidiary

    A company whose voting stock is more than 50% controlled by another ...
  4. Parent Company

    A company that controls other companies by owning an influential ...
  5. Capital Gains Tax

    A type of tax levied on capital gains incurred by individuals ...
  6. Spinoff

    The creation of an independent company through the sale or distribution ...
RELATED FAQS
  1. Why are some spin-offs taxable and some are tax-free?

    The manner in which a parent company structures the spinoff and divests itself of a subsidiary or division determines whether ... Read Full Answer >>
  2. What happens to the company stock if a subsidiary gets spun off?

    When a subsidiary gets spun off, the company's stock tends to drop. However, the investor in the stock does not lose any ... Read Full Answer >>
  3. What are some common cash-debt strategies that occur during a spinoff?

    Cash-debt strategies that are commonly used to in a spinoff to enable the parent company to monetize the spinoff are debt/equity ... Read Full Answer >>
  4. What are the tax implications for both the company and investors in a divestiture ...

    In finance, divestiture is defined as a reduction of a company's assets as a result of asset closures or the selling of business ... Read Full Answer >>
  5. What is the importance of calculating tax equivalent bond yield?

    Fixed-income investors measure portfolio returns using yields. Since most bonds do not produce high returns like equity markets, ... Read Full Answer >>
  6. How can a divestiture help a company?

    In finance, the divestiture, or divestment, represents a reduction of an asset or its sale to another company mainly for ... Read Full Answer >>
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