Canadian mutual funds - foreign non-business income (box 25

This is our main tax information forum which deals with topics concerning Canadians living and working in the U.S., U.S. citizens contemplating working in Canada, and all aspects of Canadian and U.S. income tax and related adminstrative issues.

Moderator: Mark T Serbinski CA CPA

Post Reply
abelc61
Posts: 5
Joined: Thu Dec 13, 2012 4:16 pm

Canadian mutual funds - foreign non-business income (box 25

Post by abelc61 » Tue Jan 15, 2013 5:58 pm

Hello,

Could anyone please tell me whether foreign non-business income (box 25) from a Canadian mutual fund should be included in ordinary dividends on line 9a of Form 1040?

I can't find anything about this on the forum.

Thanks.

Phil Hogan, CA
Posts: 28
Joined: Fri Jan 08, 2010 12:11 pm
Location: Victoria BC
Contact:

Post by Phil Hogan, CA » Wed Jan 16, 2013 2:29 am

It really depends on what the "foreign income" is.

Do you have a T3/T5 summary that shows what the source of the income is?

Is it US source or another country?
Phil Hogan, CA, CPA (Colorado)
Canadian and US Income Tax
http://www.hutcheson.ca/about-us/philip-hogan/
http://philhogan.com
250-661-9417
Victoria BC

MGeorge
Posts: 309
Joined: Fri Jun 22, 2012 9:23 am
Location: Canada

Post by MGeorge » Wed Jan 16, 2013 9:41 am

Shouldn't any income from a Canadian mutual fund be reported on form 8621 since it is likely considered PFIC (Passive Foreign Investment Corporation) income?

nelsona
Posts: 16509
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona » Wed Jan 16, 2013 10:03 am

And of course it is income required to be reported on 1040.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

abelc61
Posts: 5
Joined: Thu Dec 13, 2012 4:16 pm

Post by abelc61 » Wed Jan 16, 2013 3:29 pm

I have a T3 summary showing foreign non-business income in box 25. The income is from a US source.

Should it be included in ordinary dividends on line 9a of Form 1040 and on Form 8621 as someone mentioned?

Thanks.

MGeorge
Posts: 309
Joined: Fri Jun 22, 2012 9:23 am
Location: Canada

Post by MGeorge » Wed Jan 16, 2013 5:06 pm

Hi Abelc61,

I'm by no means an expert, and certainly not a pro.
From what I've read about PFIC reporting and from limited experience, any income earned in a PFIC is calculated using form 8621, and the income will always end up as "other income" on your 1040 if you go the mark-to-market route. The only exception is if you sell a foreign mutual fund (PFIC) under a mark-to-market election and you have a loss. In the case of a loss, from a sale, this loss would end up on schedule D.

The unfortunate thing is that any income from a foreign mutual fund, even if US source, is re-characterized as "other".

There might be a way around this, if you can make a "QEF" election on 8621. But I hear that it is nearly impossible to get a statement from the mutual fund that would have the required information for a QEF. Mark-to-market seems to be the only easy route - and it can sometimes lead to a double tax if you get a mark-to-market gain and no corresponding capital gain tax in Canada.

I hope this helps - get some other opinions as well.

abelc61
Posts: 5
Joined: Thu Dec 13, 2012 4:16 pm

Post by abelc61 » Wed Jan 16, 2013 5:20 pm

Thanks for this, MGeorge. You certainly know a lot more about this than I do.

I am curious to see what Chartered Accountant Phil Hogan will have to add.

Post Reply