Canadian RRSPs no longer tax deferred?

[Mach7]

Here is a link to the media ScotiaBank is sending to all of there clients that hold securities in there institution basically stating that RRSPs will be classified as corporations rather than trusts.

http://www.scotiabank.com/ca/common/pdf ... ar_end.pdf

Here is an excerpt;

These U.S. tax changes are a result of the IRS taking
the position that a Canadian mutual fund should, going
forward, be classified as a corporation rather than a
trust for U.S. tax purposes, despite the fact that many
Canadian mutual funds are classified as trusts for
Canadian tax purposes. This change has potentially
significant U.S. tax implications for the U.S. Person who
is a holder of a Canadian mutual fund.
In previous years, U.S. Persons only had a U.S.
reporting obligation with respect to PFICs if they were
reporting a distribution (dividends, etc.) from a PFIC,
sold shares of a PFIC, or were making certain elections
in respect of the PFIC. This new reporting obligation
can arise solely from holding a Canadian mutual fund.
PFICs are subject to a punitive tax regime with
associated tax liability that exceeds the tax liability
associated with a mutual fund holding in Canada.
Amongst other things, distributed income and capital
gains could be taxed as ordinary income (rather than
investment income) at the highest federal marginal tax
rate (rather than the preferential tax treatment that
may apply to investment income), and unrealized gains
could attract a non-deductible penalty interest charge.
These PFIC rules could apply to a U.S. Person even if
the PFIC is held in a Canadian registered (tax-deferred)
plan, such as a Registered Retirement Savings Plan.

Am I reading this correctly????

[nelsona]

This is completely incorrect. RRSPs have the protection of the treaty (article XXI(3)) because they are for retirement income, thus cannot be reclassified -- scotiabank does not know what they are talking about.

Mutual funds are subject to PFIC, but not mf's held in RRSPs, or RRP's.

RESps, TFSAs, and non-retirement investment accounts are all subject to PFIC rules on mutual funds, which is a known issue.

[eortlund]

nelsona, this is why I am so grateful for your presence on this board! Navigating cross-border taxes would be so confusing if you didn't faithfully answer questions like this day after day.

[JGCA]

Since they say "May be subject to the rules" it could be on RRSP that a former CND resident has not made election to defer tax so they need to report income thereon and that is probably why it may be subject to these rules, otherwise no its not.

[nelsona]

It's not a tax issue, it's an exempt entity issue.

[JGCA]

Yep, its wierd why they say it may be subject to I see no explanation as to why either, your right BNS is wrong.