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

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

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

Post by abelc61 »

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
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Joined: Fri Jan 08, 2010 12:11 pm
Location: Victoria BC
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Post by Phil Hogan, CA »

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)
Cross-border investment advisor
http://philhogan.com
250-661-9417
Victoria BC
MGeorge
Posts: 313
Joined: Fri Jun 22, 2012 9:23 am
Location: Canada

Post by MGeorge »

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

Post by nelsona »

And of course it is income required to be reported on 1040.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
abelc61
Posts: 5
Joined: Thu Dec 13, 2012 4:16 pm

Post by abelc61 »

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: 313
Joined: Fri Jun 22, 2012 9:23 am
Location: Canada

Post by MGeorge »

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 »

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.
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