please help: canadian mutual fund issue

newbie12345 · Post by **newbie12345** » Mon Jul 23, 2012 2:17 am

I am canadian citizen who moved to us in year 2005 since I married to my husband who is working in U.S. holding h1b

At the time I came across the boarder, I don't think I am going to stay in U.S. permanently since my husband's job is not stable and might lost his job then come back to Canada with me.

As the result, I did not update my td water house trading account and my RRSP account which both hold some canadian mutual funds, both generates distributions and both re-invest the distribution into new mutual fund unit with new U.S. address. Instead I changed the address to my friends house to ask them forward mail to me since I might return pretty soon.

At the next year, I made my RRSP contribution for year 2005 for some canadian mutual fund by online banking.

Then I found myself pregenate and lost my job.

I decided to stay in U.S. with my husband. I wrote to CRA and they suggested I became non-resident in year 2005.

I closed my TD waterhouse account and sold out all the canadian mutual funds. In the middle of year 2006.

Tried to update my address online but not working so I leave it as it. Did transfer some canadian mutual funds to other canadian mutual funds in the RRSP by online banking. These new acquired mutual funds were later transfered into some canadian money market fund in year 2008 under financial crisis panic and basically all capital lost.

I did not report my left over accounts properly so I enter 2011 OVDI to solve my tax issue and FBAR issue.

Then I finally changed my address of the RRSP account to U.S. address by calling them.

They told me since my address is U.S. address, I would no long allowed to do mutual fund trading. They just hold the canadian money market mutual fund in RRSP account.

This mutual fund still generates distribution and still re-invested in new canadian money market funds.

By checking with my RRSP agents and searching on line, I now understand it is against some kind of security rule to do canadian mutual fund trading while living in U.S.

What should I do? I handed in all these statements to prove I did a wrong mutual fund trading to IRS since attend the 2011 OVDI.

I can't kill myself for what has been done. I can't leave my daughter and my family.

Am I going to be prosecuted by re-invest the canadian mutual fund distributions to the same fund in my TD water house trading account? ( The re-investiment is automatically since the day I buy the mutual fund. The distribution is about $200 and generates me $10 in capital gain when sell them)
Am I going to be prosecuted by RRSP mutual fund trading (which brings me basically capital lost in RRSP) without notify my new address?

Should I find a lawyer? Any one could suggest a good security trading lawyer ? The lawyers listed in google seems more related to the area of security inside trading etc.

newbie12345 · Post by **newbie12345** » Mon Jul 23, 2012 8:38 am

Sorry about thr long post. English is not my first language....

To summarize my question

Would they put me in jail for purchase Canadian mutual in USA ? I did not update my account with new address in u.s.a when moved to USA in 2005 so my RRSP and outside RRSP mutual fund broker still allowed me to do the transaction.

One type of purchase is mutual fund distribution Automatically reinvestment. This account is not rrsp, I closed it in year 2006. Wrongly paurchased mutual fund shares give me $10 capital gain.

The others are rrsp mutual funds trading. And most of the purchase end up in capital lost.

I am in ovdi 2011 so that IRS has all the information. Would they hand me to sec?

Should I get a security fraud lawyer? Anyone knows a good lawyer?

I am not afraid to be throw in jail if I deserve it. Just could not bear to be separated from my little kids

nelsona · Post by **nelsona** » Mon Jul 23, 2012 10:11 am

No. You should advise your broker that you are in US, and he will then tell you what to do, which will probabaly be to move your RRSP toa nothe rbtoker, like TD waterhouse, which is licensed to work wit hUS resident RRSP-holders.

The other problem you have is with a Cdn mutaul fund outside your RRSP, you are stuck with PFIC reporting on your 2011 tax return, and/or penalaties.

MGeorge · Post by **MGeorge** » Mon Jul 23, 2012 10:39 am

Hi Newbe12345,

I'm definitely not a professional, so I can't give you professional advice. However, after reading your situation, it sounds like you have only made inocent mistakes. I would suggest you follow nelsona's suggestion - and also discuss your situation with a tax accountant how is familiar with Canada/US tax issues.

I really don't think you will be thrown in jail - and I would be very surprised if you are given a penalty - it really doesn't sound like you have been trying to avoid taxes.

Have you received a letter from the IRS - are they proposing penalties? If not - you don't need a lawyer - in my opinion.

Regards.

newbie12345 · Post by **newbie12345** » Mon Jul 23, 2012 11:04 am

Thank you all very much for the reply!

Here is what happened:

I updated my address in year 2011 for my RRSP mutual fund. The broker sent me a letter saying they will hold my mutual fund for me but not allowed me to do any new contribution or switch the funds. But re-investment of the distribution according to them are not against any law since it is not new money but income from the same fund.

For the mutual fund out side of my RRSP, I already sold them (and closed the trading account in year 2006). I participant in 2011 OVDI program to clear this tax issue together with the FBAR with IRS. There are some tax company taking care of them for me.

I did not received any warning from IRS yet since my case is not assigned.

My major concern is IRS has all my trading record, would them hand it to SEC to charge me criminal of security fraud since purchase the canadian mutual fund in U.S. is not right. And it is partianly because I did not updated my address with my brokers on time?

My trading inside the RRSP brings me distrubutions of $1000 but captial lost of more than $3000.

The mutual fund out of the RRSP purchased by distrubtion re-investment brings me capital gain of $10 and $2 of extra distribution income.

If they indeed find this is a fraud, would they forgive me since the mistake cause me lost than gain?

nelsona · Post by **nelsona** » Mon Jul 23, 2012 11:06 am

You are overreacting. The BROKER is the one who would have violated regulations, not you. You have inforemed the broker and they have given you remidial actions.

Your concern is proper REPORTING of the funds and any income and tax.

newbie12345 · Post by **newbie12345** » Mon Jul 23, 2012 11:15 am

but I did not tell them I actually move in year 2005. I just update my address with them in year 2011. (The agent over the phone did not ask).

I checked the state SEC rule and it says:

security should be registered

transaction should be registered

the broker should be exempt (surprised) since I am with them for long time and it is a foreign transaction.

Any willingful act cause the broker not register the security and the transaction would be consider Class 4 falony. :cry:

I am not worry about the tax issue since the holding of pfic is short (only two year) and I am already in the OVDI to pay the tax back

nelsona · Post by **nelsona** » Mon Jul 23, 2012 1:16 pm

As I said, the BROKER is the one that has concerns; you have informed your broker. Move on.

The fact that you are in OVDI tells me you don't know much about taxes, so I won't bore you with any more details.

newbie12345 · Post by **newbie12345** » Mon Jul 23, 2012 1:51 pm

Thank you for the words. I feel much more better. Thank you!

Regarding about my tax issue, I am in ovdi 2011 to correct my fbar issue and tax issue. My tax agent amendet the 2006 tax return to report the capital gain of the mutual fund. I sold other stocks in the same year so that in total, it end it up a capital lost for that year. agent explained since I sold the mutual fund the second year moved to u.s., IRS might be fine with this solution. If they do not agreed, we amendet 2005 and 2006 to report pfic.

He think the distribution should be report as other dividend income. Which. Is added as normal income. It is not much anyway. For year 2005, distribution is 200, 2006, 90. Total capital gain in 2006 from mutual fund is 1200 but offset by other stock lost in the same td water house account.

We have 2005 and 2006 td water house statement for the trading, distribution or potential pfic report if requested by IRS.

Did he fool me or do anything wrong? Please let me know....
Is it wrong to join ovdi 2011?

For the cra, I don't think it is an issue since only capital gain related distribution or distribution from real state, resource mutual fund need to be reported, for my case, according to the info from td asset management, the fund income are from interest, divident etc, no withholding tax for Canada for 2006.

nelsona · Post by **nelsona** » Mon Jul 23, 2012 3:49 pm

Dividends are ssubject to Cdn witholding tax.

newbie12345 · Post by **newbie12345** » Mon Jul 23, 2012 4:26 pm

Thanks nelsona! You've give me so much help.

for the Dividents, I understand dividents directly pay from my stocks are subject to Cdn withholding tax.

But would mutual fund distribution generate from mutual fund income (part of which are divident, part of which are from interest, part of it is from exchange etc ) are also subest to Cdn withholding tax?

According to T4061
Mutual fund investment distributions section
just listed two types of distrubtion subject to withholding tax:
TCP: capital gains distributions made by mutual fund trusts
and on capital gains dividends paid by mutual fund
corporations from the disposition of taxable Canadian
property (TCP).
Assessable distributions: Non-residents who invest in Canadian property mutual fund investments

nelsona · Post by **nelsona** » Mon Jul 23, 2012 4:40 pm

If your mutaul funds distribute Cdn dividends that they are subject to NR withholding if you are non-resident.

What you describe is dividends.

You have an accountant, speak to him.

nelsona · Post by **nelsona** » Mon Jul 23, 2012 4:41 pm

Your T3 or T5 that was issued each year will tell you what the distributions were.

newbie12345 · Post by **newbie12345** » Mon Jul 23, 2012 4:54 pm

My tax agent just handle the U.S. tax.

I need to work on this myself :-(

My problem is I did not receive the mutual fund distribution slip from the either the broker or the TD asset management for year 2006.

Actually, I just find out I did not pay my withholding tax in year 2006 since the address is not updated properly that they still send me T5, instead of NR slips.

I talked with CRA internationl agent, according to them, since the amount of withholding tax is small (less than $200), I just need to send them the T5 slips and the non-resident status determination letter received from CRA in year 2005.

They will charge me interest and penalty (late filing, fail to withhold tax maybe some percent of the tax I owe).

Since the total amount of tax owe is not that big, I don't mind to pay the penalty.

Since you told me about this, I think I would pay 15% for the $90 distribution. (I believe dividend rate and TCP rate are same 15% percent) But I did not receive any tax slip. Should I just told them I did not receive tax slip so the distribution is from my own calculation?
or I need to show them the td water house statement?

nelsona · Post by **nelsona** » Mon Jul 23, 2012 6:07 pm

Which is it. You said you got T5. What else were you expecting? Then you say you did not get a slip.

The withholding rate is 15%.