Clarification Sought on Definition of PFIC

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future_canuck
Posts: 12
Joined: Wed Dec 02, 2020 2:08 am

Clarification Sought on Definition of PFIC

Post by future_canuck »

I recently moved to Canada and am looking to invest.

I like asset classes like self storage and mobile home parks via syndicated deals (crowdsourced funds).

I'm very early in my research (lots of other things to do), but would these types of holdings be considered PFIC's? For examples, companies/offerings such as the following:
https://makespacecapital.com/
https://www.avenuelivingam.com/fund/min ... ies-trust/
https://invest.nationwideselfstorage.ca/about/

If these are PFICs, and effectively off limit for a US Citizen / Canadian tax resident, if I renounce my US Citizenship in the future, but my wife is still a US Citizen and we'd still need to file US taxes, do we both get caught in the IRS's web of PFIC classification if I am the holder (by name) of these funds?
skobes
Posts: 33
Joined: Sat Mar 25, 2017 10:41 pm

Re: Clarification Sought on Definition of PFIC

Post by skobes »

The definition of a PFIC is broad enough to encompass most foreign investment entities (mutual funds, ETFs, etc., domiciled outside the US). I would be surprised if the funds you identified were not PFIC's.

If you're going to invest in a PFIC, look for one that provides a "PFIC Information Statement", which will allow you to make the QEF election on Form 8621. Most Canadian mutual fund / ETF issuers, such as Vanguard and Blackrock, provide these.

> if I renounce my US Citizenship in the future, but my wife is still a US Citizen and we'd still need to file US taxes, do we both get caught in the IRS's web of PFIC classification if I am the holder (by name) of these funds?

First, be aware that renouncing US citizenship can incur a substantial "expatriation tax" for high net worth individuals. See Pub. 519 pp. 23-25.

If you have renounced US citizenship, and your wife files her US return separately (MFS), then shares held by you alone are outside of the US PFIC regime. If you choose to file jointly (MFJ), this would not be the case.
future_canuck
Posts: 12
Joined: Wed Dec 02, 2020 2:08 am

Re: Clarification Sought on Definition of PFIC

Post by future_canuck »

Thanks. Appreciate the insight. I didn't know there were funds that provided PFIC info.

Yes, I would expatriate before crossing the thresholds that trigger the mark to market taxes.

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New question: If I directly purchase a property (rental, mobile home park, self storage, etc), and hold it under my name, it's not a PFIC, correct? But, if I put it under a business and hold it through some kind of entity (Canadian equivalent of LLC???), then it's a PFIC?
skobes
Posts: 33
Joined: Sat Mar 25, 2017 10:41 pm

Re: Clarification Sought on Definition of PFIC

Post by skobes »

> If I directly purchase a property (rental, mobile home park, self storage, etc), and hold it under my name, it's not a PFIC, correct?

Correct. Any rental income would go on a Schedule E, which is fairly straightforward.

> But, if I put it under a business and hold it through some kind of entity (Canadian equivalent of LLC???), then it's a PFIC?

Canada doesn't have LLC's. You could form a Canadian corporation to hold it, but this is taxed by the US as a Controlled Foreign Corporation (CFC), which is even more troublesome than a PFIC, so I wouldn't recommend this.
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