I'm looking over forms 8621 and 8891 and I'm wondering if there is an inconsistent treatment of the income earned by a PFIC (Canadian mutual fund). Form 8891 has blanks for the familiar classes of investment income on line 10. But if you hold a PFIC outside of an RRSP and choose the QEF election on form 8621, then your income is re-classified into generic ordinary earnings and capital gains.
Also, is there any tax advantage to avoiding the Article XVIII(7) election? I'm trying to figure if paying taxes on undistributed earnings somehow raises the cost amount for the purposes of figuring the taxable portion of the (eventual) RRIF to be reported on Form 1040, line 16b. I'm reading publication 575 and it doesn't look like it, so is there no tax advantage to avoiding the election? Why bother printing those boxes on the form then?
Inconsistent treatment of PFIC between RRSP and non-RRSP?
Moderator: Mark T Serbinski CA CPA
RRSPs are specifically exempted by treaty from all this PFC nonsense.
Paying tax on your internal RRSP income DOES raise the non-taxable portion of your RRSP. In fact, if you pay as you go, you should ow little or no tax on distribution of your RRIF/RRSP.
However, this does not help you since there is no way araound paying tax in canada on your RRSP/RRIF withdrawal, so you face the likelihood of paying tax now to IRS, and tax later to CRA with no possibilty to meld the taxes for foreign tax credit purposes.
I too see no advantage in NOT electing. But there may be situations, particularly when living in canada, where internal earnings, even when reported, would not incur tax. Tn that case, there is no disadvnatge in reporting the income, and not electing, and building up the cost. who knows what the persons tax situation might be in the future.
Paying tax on your internal RRSP income DOES raise the non-taxable portion of your RRSP. In fact, if you pay as you go, you should ow little or no tax on distribution of your RRIF/RRSP.
However, this does not help you since there is no way araound paying tax in canada on your RRSP/RRIF withdrawal, so you face the likelihood of paying tax now to IRS, and tax later to CRA with no possibilty to meld the taxes for foreign tax credit purposes.
I too see no advantage in NOT electing. But there may be situations, particularly when living in canada, where internal earnings, even when reported, would not incur tax. Tn that case, there is no disadvnatge in reporting the income, and not electing, and building up the cost. who knows what the persons tax situation might be in the future.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best