California tax on RRSP

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RRSPTax
Posts: 1
Joined: Fri Aug 05, 2016 6:45 pm
Location: California

California tax on RRSP

Post by RRSPTax »

Hi everyone

I am new to this forum. There is very useful information here for Canadians working in US. I understand that in California I have to pay tax on RRSP investment income. Recently I have learnt about synthetic ETFs which apparently let us to avoid paying tax to California. Here is some info about this type of ETF which is offered by Horizons: (http://www.horizonsetfs.com/horizons/me ... uction.pdf)

Could you please let me know how this ETF works? Can we really avoid California tax in this way? Is there any extra risk with this ETF comparing to physical ETFs? Is Horizons synthetic ETFs are good products? Is there any other choices in Canada?
nelsona
Posts: 18311
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

you might not be permitted to put these in your rrsp, but if you can, then they would follow the same rules as if not in an RRSP.

of course, the things you sell to buy these would trigger taxable gains in cali.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
MGeorge
Posts: 313
Joined: Fri Jun 22, 2012 9:23 am
Location: Canada

Post by MGeorge »

Hi There,

Those Horizons total return swap based ETFs would certainly be considered PFICs under US tax laws. As a resident of Canada, I can't believe they are allowed here. They make no distributions, and all investments gains are only taxable when the units are sold. This is exactly what the PFIC rules were designed for!

In your situation, I would suggest holding US domiciled ETFs in your RRSP (I do, and it's allowed). The California tax you'd be stuck paying would be qualified dividends and capital gains. Maybe throw in some muni-bond ETFs as well.

Cheers!
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MGeorge is neither an accounting nor taxation professional.
MGeorge
Posts: 313
Joined: Fri Jun 22, 2012 9:23 am
Location: Canada

Post by MGeorge »

I just read in another thread that the California tax authority doesn't care about the PFIC rules - please disregard that point from my previous post! You might be fine with those Horizons ETFs (a smart move now that I think about it!)
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MGeorge is neither an accounting nor taxation professional.
nelsona
Posts: 18311
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

Besides, RRSP holdings are exempt from PFIC rules altogether.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
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