What a spin-off does to your holdings
In a spin-off, a company distributes shares of a subsidiary to its shareholders, so you now own both the parent and the spun-off entity. Your total economic position hasn’t changed at the moment of the spin-off, but your single cost base now has to be allocated across two securities.
Splitting the ACB
You divide your original ACB between the parent and the new shares, typically in proportion to their relative fair market values just after the spin-off. The company or your broker usually publishes the recommended allocation percentages.
Foreign spin-offs can be taxable
Spin-offs from US and other foreign corporations are often treated as a taxable foreign dividend by default — potentially a nasty surprise. Canada offers section 86.1, which lets eligible foreign spin-offs be received on a tax-deferred basis if you elect on your return for the year. The election is not automatic; miss it and the distribution can be fully taxable.
Getting it right later
The allocation you set at the spin-off drives the capital gain on both stocks whenever you eventually sell either one — sometimes years later. A misallocation quietly distorts two future gains, which is why recording it correctly at the time matters.