Clarification on capital gains within Canadian Mutual Funds

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andied
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Post by andied »

But holding a MF in an RRSP should eliminate the tax issue with unrealized cap gains and the need to report this as income, and the income (possibly tax exempt in Canada) from REIT's. Right?
nelsona
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Post by nelsona »

Income, yes. Trust, foreign holdings, PFIC, etc, not necessarily.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D
andied
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Joined: Wed Feb 09, 2005 11:21 am

Post by andied »

Wow! Just a bit on the new reporting forms, which apparently will require listing all foreign investments:

"beginning in 2011 (for tax returns filed in 2012) there is a requirement to report all foreign investments in your tax return where the total of the maximum value those investments during the year is $50,000 or more. This includes such investments as individual security issues. The details required include the name and address of the issuer and account numbers, as well as the value."

nelsona, I know from previous comments, you disagree, but I think this will definitely push my children to renounce their US citizenship (I have urged them to delay such a move previously), and very possibly myself - just too stressful, time wasting and potentiall financial ruin.
patti
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Post by patti »

Wow, sounds like the rules may be changing. So what happens in the case where somebody has held a Cdn MF for many years and now sells it? When the investment was purchased, nobody considered it a PFIC. Then, suddenly the IRS changes the rules. When the investor sells the MF are they required to pay PFIC taxes & penalties? Or can it be grandfathered (at least up until the rules changed)? Obviously, had the investor known it was a PFIC, they could have either avoided buying it or at least marked-to-market each year.
Dalthien
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Post by Dalthien »

andied,

TFSA's are basically worthless for US citizens (which doesn't mean much early on, but after 15 or 20 years becomes a pretty sizable disadvantage). Cdn mutual funds have just been reclassified as corporations, making them unavailable to US citizens unless you want to deal with all the PFIC crap and extra taxes. And then there's FATCA which kicks in starting 2013 where all Cdn banks and brokers have to report all accounts of US citizens directly to the IRS - which will likely result in some banks and brokers refusing to deal with US citizens at all in order to avoid the onerous requirements.

Then as you mention, add in all the stress, wasted time, potential financial ruin of having misunderstood something (like forgetting FBAR, or misunderstanding PFIC or 3520, etc.)

For someone who is absolutely sure that they will never work or live in the US again, there are very legitimate reasons for considering renunciation. It is a very personal choice for each individual, and definitely not something to be taken lightly. And for those who are wealthy, there may also be an exit tax due to the IRS upon renunciation (which I discussed here in a different thread). But the choice may make a great deal of sense for some individuals.
patti
Posts: 66
Joined: Sun Apr 24, 2011 7:28 pm

Post by patti »

"Say what? I thought I was safe keeping MF's, reit's, etc. in my RRSP..."

I do not believe cdn REITS are by definition considered PFICs. My understanding was that so long as the REIT did it's own property management, it was OK. Can anyone confirm this?
andied
Posts: 55
Joined: Wed Feb 09, 2005 11:21 am

Post by andied »

A REIT is not a PFIC, but is a trust & could presumably require the filing of 3520/3520A.
quickcanuck
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Joined: Mon Jun 27, 2011 2:10 pm

more 8621 questions

Post by quickcanuck »

A follow-up question about the mechanics of filing an 8621. If I use the Mark to Market approach and declare the full amount of the annual change in value of my mutual fund account as other income, I will have also captured the reinvested distributions, since they are part of the increase in value. Is it correct to leave the reinvested distributions off the 1040 as interest and NQ dividends, and just report only the one number in other income, or should I subtract the distributions and claim them on the appropriate line on the 1040 and then report the balance which is the undistributed (unrealized) capital gain on the other income line?

Also, if I had a loss last year in the mark to market calculation, and did not need the loss to reduce income because no tax was payable in that year, can I use that loss to reduce my gain this year?
nelsona
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Post by nelsona »

They should be reported separately. The distributions are ALWAYS taxable, regardless of how you elect to treat your foreign investment. Only the income arising from the choice on 8621 should be at play on this form.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D
patti
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Joined: Sun Apr 24, 2011 7:28 pm

Post by patti »

quickcanuck - Good question! I would have assumed the same thing as you. So long as you are re-investing all your distributions and marking to market each year on form 8621, you could effectively pay all your taxes through that form instead of having separate out the distributions each year to put on form 1040. That would be much easier. Unfortunately, I guess that's not possible. :(
nelsona
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Post by nelsona »

Nope. Doesn't work that way.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D
quickcanuck
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Post by quickcanuck »

Again, a sincere thank-you to Nelson (Nelson, eh?) for all the help to us unwitting new US tax filers. I think I have the 8621's, 3520/20A and FBAR done, now working on the RRSP's.

I am preparing an 8891 for my mutual funds that are in an RRSP account. I would prefer to take the reinvested distributions and the growth in unit value into income each year because I have no tax owing with my deductions and exemptions. I see that I can report the interest and dividend distributions in section 10, but the unrealized capital gain is not distributed, it is captured as the increase in unit value. Can I stick this annual change in value in 10d - capital gain?
nelsona
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Post by nelsona »

No. You can not report a capital gain that has not yet occured.

You will be preparing an 8891 for the RRSP as a whole, not for the mutual funds themselves.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D
tsanaha
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Post by tsanaha »

if i understand correctly, for RRSP f8891 has to be used regardless what kind investments (like GIC or mutual fund).

in my case of OVDI. if IRS let me to make the election (back to 7/8 years), then no other forms are needed since no single cashing out event.

if they reject back year election, then I will have to deal with PFIC (mutual fund, etc) -- but still report the income on form f8891..

Right ?
quickcanuck
Posts: 19
Joined: Mon Jun 27, 2011 2:10 pm

Post by quickcanuck »

The RRSP account is with the mutual fund company, and holds only mutual funds that are PFIC's. Could I choose not to deal with them as an RRSP, and prepare an f8621 instead and use Mark to Market to capture the annual change in value?
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