Taxable Spinoff


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.

BREAKING DOWN '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.

  1. Divestiture

    The disposal of a business unit through sale, exchange, closure, ...
  2. Subsidiary

    A company whose voting stock is more than 50% controlled by another ...
  3. Capital Gains Tax

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

    The creation of an independent company through the sale or distribution ...
  5. Scrip

    1. A written document that acknowledges a debt. 2. A temporary ...
  6. Parent Company

    A company that controls other companies by owning an influential ...
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