I wanted to put this out there to see if anyone has some feedback on an idea that I had regarding 8621 reporting of Canadian mutual fund income. I apologize for the long post – but I am really interested in feedback if anyone can read through this.
It seems that the path of least resistance for Cdn mutual fund holders to stay in compliance with US tax laws is to take the “Mark-to-market†election. The big disadvantage being – it can lead to double taxation since gains in the US are not synchronized with gains in Canada – and there is no preferential tax treatment from any long term capital gains and dividends that one might be eligible to receive had it been a US mutual fund.
Reading the rules for the QEF election – it says quite clearly that a QEF statement is needed to properly make this filing election – or that sufficient information must exist so that the tax payer can calculate the required amounts.
First off, are these assumptions correct?
1. By law, US mutual funds must distribute 95% of internally generated income to share holders. Similarly, all Canadian mutual funds must distribute all internally generated income (interest received, dividends, capital gains from equity trades, etc).
2. Canadian mutual funds will not track which capital gain distributions are “long-term or short-term†by the US definition. As long as the US taxpayer forfeits the long-term capital gain distribution treatment, the IRS won’t mind.
Here is the algorithm.
1. Take the QEF election based on information from the mutual funds annual report + T3 distribution data.
2. Report all capital gain distributions as “ordinary income†for QEF purposes. Report dividends from Canadian corporations as “qualified dividends†as per the treaty. The dividend part would have to go on schedule B – not 8621.
3. Enter $0 for long term capital gain distributions since this info is not available.
4. When selling shares of the QEF, simply report NAV based gains on Schedule D and these may be long term if held for more than a year.
Pros/cons:
- Cons: Long term capital gain distributions (internal to the fund) are forfeited.
- Pros: If the fund is held more than a year – it keeps its capital asset character, then can be claimed as a long term capital gain once sold
- This allows better synchronization with the Canadian tax system and reduces likelihood of a double tax.
I’m interested in feedback. Please note – this is not advice, I’m not an accountant, and have no financial training.
Search found 313 matches
- Tue Apr 23, 2013 5:00 pm
- Forum: Canada / United States Tax & Accounting
- Topic: A simple algorithm for a QEF election on a Cdn Mutual Fund
- Replies: 0
- Views: 2368
- Tue Apr 16, 2013 3:41 pm
- Forum: Canada / United States Tax & Accounting
- Topic: Turbotax and 8891
- Replies: 19
- Views: 11341
Hi Frankd1, I switched to TaxACT this year. I used Turbotax deluxe for the 2011 return, and I switched to taxACT for 2 reasons: 1. Turbotax wouldn't let me efile with an NRA wife because it insisted on a SSN or ITIN for her. TaxACT let me by clicking a box stating my spouse is NRA, and I file marrie...
- Mon Apr 15, 2013 5:04 pm
- Forum: Canada / United States Tax & Accounting
- Topic: Turbotax and 8891
- Replies: 19
- Views: 11341
- Thu Apr 11, 2013 4:05 pm
- Forum: Canada / United States Tax & Accounting
- Topic: Investment Options for a US Citizen Living in Canada
- Replies: 15
- Views: 11187
- Thu Apr 11, 2013 2:35 pm
- Forum: Canada / United States Tax & Accounting
- Topic: Investment Options for a US Citizen Living in Canada
- Replies: 15
- Views: 11187
- Thu Apr 11, 2013 1:12 pm
- Forum: Canada / United States Tax & Accounting
- Topic: Investment Options for a US Citizen Living in Canada
- Replies: 15
- Views: 11187
- Thu Apr 11, 2013 12:56 pm
- Forum: Canada / United States Tax & Accounting
- Topic: TFSA. What forms?
- Replies: 9
- Views: 5642
I was in a similar situation. For the TFSA, I had to file 3520, 3520A, and because I had mutual funds in it, I had to file a 8621 for each fund. You do have to declare the income generated from the TFSA investments on your 1040, and you can't attribute any Canadian taxes to the TFSA income. I was lu...
- Thu Apr 11, 2013 12:51 pm
- Forum: Canada / United States Tax & Accounting
- Topic: Does adding a spouse as an exemption have no effect for me?
- Replies: 7
- Views: 3551
- Mon Apr 08, 2013 12:33 pm
- Forum: Canada / United States Tax & Accounting
- Topic: Form 8621: is it necessary to split up MF's in an account?
- Replies: 1
- Views: 2006
Hi CdnAmerican, I think technically, you have to file 6 8621s. Are the 3 Cdn mutual funds common to both accounts? If you only hold 3 different funds (in 2 accounts), then you can file 3 8621s. It might be tricky to get the 3520A right - you'd have to make sure everything adds up. I think the reason...
- Thu Apr 04, 2013 2:42 pm
- Forum: Canada / United States Tax & Accounting
- Topic: Investment Options for a US Citizen Living in Canada
- Replies: 15
- Views: 11187
Hi Cmason, There is one option I've been meaning to try regarding US ETFs. If you don't mind the 3520A/3520A reporting, one low tax option is to hold US ETFs in a TFSA. Since they know you're a US citizen, they shouldn't withhold any US tax. So, the only tax you'd be on the hook for, would be the US...
- Thu Mar 28, 2013 2:45 pm
- Forum: Canada / United States Tax & Accounting
- Topic: Canadian Employee Benefits taxable in US?
- Replies: 6
- Views: 3415
I looked into employer contributions to medical and dental insurance plans and these are not considered taxable benefits on the 1040. As far as I know box 14 on the T4 has the same meaning as line 7 on the 1040 (not considering treaty adjustments) The only place that taxes these benefits (employer c...
- Mon Mar 25, 2013 3:48 pm
- Forum: Canada / United States Tax & Accounting
- Topic: submitting FBAR
- Replies: 1
- Views: 1513
- Fri Mar 01, 2013 3:39 pm
- Forum: Canada / United States Tax & Accounting
- Topic: RESPs and US taxes
- Replies: 39
- Views: 29439
- Thu Feb 21, 2013 9:43 am
- Forum: Canada / United States Tax & Accounting
- Topic: File as head of household with NRA spouse
- Replies: 7
- Views: 4000
Thanks for your reply. I'm really on the fence on this one. Every year I file MFS - and have more than enough foreign tax credits to bring on a zero balance. I'm trying to work out if it is worth the ITIN application headache to get more foreign tax credit carry forwards. I didn't realize that it is...
- Wed Feb 20, 2013 4:39 pm
- Forum: Canada / United States Tax & Accounting
- Topic: File as head of household with NRA spouse
- Replies: 7
- Views: 4000
File as head of household with NRA spouse
Hi - I just found out that it is possible to file as "head of household" if your spouse is a NRA, and you pay more than half the living expenses, and you have a qualifying person such as a child. I'm a USC in Canada, my spouse is NRA, and our son is a non-USC. My question: can I file head ...