re-invested dividends - US tax reporting

[mikec2]

I am a dual citizen with residency in Canada. I file both US and CDN tax returns however my taxes are paid in Canada, and my US tax works out to 0 in the end.

I have mutual fund in which i automatically re-invest the dividends in the same fund. Most of these dividends are shown as capital gains on the canadian t3 box 21. In this case the fund is Saxon small cap and it is showing over $10,000 in this box.

My question is that it appears that on the US tax return re-invested dividends are reported as income on schedule B rather than capital gains on schedule D. They will only appear on schedule D when i actaully sell these funds. These amounts will also be figured into my adjusted cost base for later use in capital gains calculations. Have i got this correct and there is just a fundamentally different treatment for re-invested income in Canada vs USA?

[nelsona]

This seems correct. Remember that the definitions of distributions varies between contries, and IRS has no way of assuring itself that these distributions were capital gains or dividends (by IRS rules), so they treat it as income.

Same applies in canada for US mutuals: all distributions are reported as ordicary income.

[JohnSt]

This issue has rarely arisen on this forum, but wouldn't mikec2 be required to file from 8621 as part of the PFIC rules? My understanding is that most Canadian mutual funds fall into this camp.