Schedule K-1 (Form 1065) - what to do?
Moderator: Mark T Serbinski CA CPA
Schedule K-1 (Form 1065) - what to do?
Hello,
I hope members of the forum can help me!!
I just got notices in the mail from a couple of Brookfield (BPY and BIP) companies. They are Schedule K-1 (Form 1065).
What do I need to do with these Forms? Confused...
1. I keep these companies in my US $$ TFSA and US $$ RRSP.
If I kept these in a taxable account (I don't....) but in a Canadian non-registered accounts, companies like BPY.UN/BPY and BIP.UN/BIP - the tax is withheld but can be claimed back via the foreign tax credit when you file your tax return.
2. Registered accounts. From what I know....
a) RRSP - the withholding tax is waived if you hold the U.S. stock in your RRSP. There is no tax filing to do with any Form 1065 for the IRS.
b) TFSA - the withholding tax is not waived if you hold the U.S. stock (like BIP) on the U.S. side of the TFSA and you need to file a Form 1065 for the IRS??
OR, you don't need to file a Form 1065 and the withholding tax is simply taken off, and not recoverable?
I'm confused....
Do I need to file a U.S. tax return?
2. These are Canadian companies that trade on the U.S. market. I get dividends and distributions from them in U.S. dollars. Is there something I'm not aware of from a tax perspective?
Thanks very much for your help - confused!!
I hope members of the forum can help me!!
I just got notices in the mail from a couple of Brookfield (BPY and BIP) companies. They are Schedule K-1 (Form 1065).
What do I need to do with these Forms? Confused...
1. I keep these companies in my US $$ TFSA and US $$ RRSP.
If I kept these in a taxable account (I don't....) but in a Canadian non-registered accounts, companies like BPY.UN/BPY and BIP.UN/BIP - the tax is withheld but can be claimed back via the foreign tax credit when you file your tax return.
2. Registered accounts. From what I know....
a) RRSP - the withholding tax is waived if you hold the U.S. stock in your RRSP. There is no tax filing to do with any Form 1065 for the IRS.
b) TFSA - the withholding tax is not waived if you hold the U.S. stock (like BIP) on the U.S. side of the TFSA and you need to file a Form 1065 for the IRS??
OR, you don't need to file a Form 1065 and the withholding tax is simply taken off, and not recoverable?
I'm confused....
Do I need to file a U.S. tax return?
2. These are Canadian companies that trade on the U.S. market. I get dividends and distributions from them in U.S. dollars. Is there something I'm not aware of from a tax perspective?
Thanks very much for your help - confused!!
The tax withheld on these dividends is typically the final US tax, so there is no need to file any US tax form, and no way to reduce this US tax. As you indicated, RRSPs are protected from this tax, but not other accounts.
You can try to claim a foreign tax credit on your Cdn return, if you have other US-sourced income, including non-sheltered investments that generate US-sourced income. Otherwise, you are out-of-luck.
Might be wise to make an in-kind transfer to get these into either a non-sheltered investment account, or your RRSP.
You can try to claim a foreign tax credit on your Cdn return, if you have other US-sourced income, including non-sheltered investments that generate US-sourced income. Otherwise, you are out-of-luck.
Might be wise to make an in-kind transfer to get these into either a non-sheltered investment account, or your RRSP.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
Thanks for the reply.
Here are more details....
1. I hold BIP in my US RRSP. I didn't think I needed to file a U.S. tax return to the IRS because in Canada, BIP is in a registered account (RRSP). U.S. stocks or U.S. MLPs in a registered account avoid withholding taxes AND are not subject to Foreign Income Reporting.
Is that correct???
https://www.pwlcapital.com/en/Advisor/W ... le-a-T1135
"Luckily, investments held inside Canadian registered accounts (RRSP’s, RRIF’s, TFSA’s etc.) are exempt from this reporting requirement, as are foreign securities held by Canadian mutual funds and ETF’s. This means the average investor only has to worry about non-registered accounts and foreign bank accounts."
2. I hold BPY in my US TFSA. I didn't think I needed to file a U.S. tax return to the IRS because in Canada, BPY is also in a registered account (TFSA). The only headache here is....there is withholding taxes. I cannot claim a credit for this.
U.S. stocks or U.S. MLPs in a TFSA are charged 15% withholding taxes BUT, are NOT subject to Foreign Income Reporting.
I read articles like this but I'm not sure it's true...
http://www.digitaljournal.com/life/pers ... cle/385952
*Sigh*
I can't be the only person that owns some Brookfield companies in my RRSP or TFSA??
Thanks for any further help...
Here are more details....
1. I hold BIP in my US RRSP. I didn't think I needed to file a U.S. tax return to the IRS because in Canada, BIP is in a registered account (RRSP). U.S. stocks or U.S. MLPs in a registered account avoid withholding taxes AND are not subject to Foreign Income Reporting.
Is that correct???
https://www.pwlcapital.com/en/Advisor/W ... le-a-T1135
"Luckily, investments held inside Canadian registered accounts (RRSP’s, RRIF’s, TFSA’s etc.) are exempt from this reporting requirement, as are foreign securities held by Canadian mutual funds and ETF’s. This means the average investor only has to worry about non-registered accounts and foreign bank accounts."
2. I hold BPY in my US TFSA. I didn't think I needed to file a U.S. tax return to the IRS because in Canada, BPY is also in a registered account (TFSA). The only headache here is....there is withholding taxes. I cannot claim a credit for this.
U.S. stocks or U.S. MLPs in a TFSA are charged 15% withholding taxes BUT, are NOT subject to Foreign Income Reporting.
I read articles like this but I'm not sure it's true...
http://www.digitaljournal.com/life/pers ... cle/385952
*Sigh*
I can't be the only person that owns some Brookfield companies in my RRSP or TFSA??
Thanks for any further help...
I think you are mixing two issues, maybe even three.
T1135 is a Cdn REPORTING mechanism, requiring you to simply LIST certain foreign investments. As clearly indicated in the instructions, you do not need to list them on T1135 if they are part of a Cdn registered account.
That has nothing to do with the INCOME issue however. Foreign investment REPORTING, is not the same as reporting Foreign income. in your case None of the INCOME reported on the K-1 should be included on your Cdn return, since it was all held in your sheltered accounts. And you would not have to file a US tax return, since any US tax withheld would be the final US obligation.
So, no inclusion on T1135, and no US tax return will be needed.
However, Your K-1 was not only issued for INCOME purposes, it also reports any tax WITHHOLDING.
Regardless of whether they should or should not be LISTED on your T1135, or whether the income was taxable in Canada or not, the investments remain subject to US and/or Cdn taxation, if, for example, you are paid US-sourced dividends; or if the US entity received Cdn-source dividends, and thus is reporting the tax they withheld from you. that is why you got a K-1.
If there is Cdn tax withheld, you can use this along with any other Cdn tax that was withheld at source (like from your wages, etc). The income itself of course would not be reported on your Cdn return, since it is within your sheltered accounts, but the Cdn tax withheld can be used.
If there is US tax withheld, you can try to claim foreign tax credit under the conditions I mentioned in earlier post above. That is why I asked about what country's tax withholding is being reported on K-1.
T1135 is a Cdn REPORTING mechanism, requiring you to simply LIST certain foreign investments. As clearly indicated in the instructions, you do not need to list them on T1135 if they are part of a Cdn registered account.
That has nothing to do with the INCOME issue however. Foreign investment REPORTING, is not the same as reporting Foreign income. in your case None of the INCOME reported on the K-1 should be included on your Cdn return, since it was all held in your sheltered accounts. And you would not have to file a US tax return, since any US tax withheld would be the final US obligation.
So, no inclusion on T1135, and no US tax return will be needed.
However, Your K-1 was not only issued for INCOME purposes, it also reports any tax WITHHOLDING.
Regardless of whether they should or should not be LISTED on your T1135, or whether the income was taxable in Canada or not, the investments remain subject to US and/or Cdn taxation, if, for example, you are paid US-sourced dividends; or if the US entity received Cdn-source dividends, and thus is reporting the tax they withheld from you. that is why you got a K-1.
If there is Cdn tax withheld, you can use this along with any other Cdn tax that was withheld at source (like from your wages, etc). The income itself of course would not be reported on your Cdn return, since it is within your sheltered accounts, but the Cdn tax withheld can be used.
If there is US tax withheld, you can try to claim foreign tax credit under the conditions I mentioned in earlier post above. That is why I asked about what country's tax withholding is being reported on K-1.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
Thanks very much for the reply...this is great.
So, just so I have this straight (since I cannot be the only BIP shareholder!)....
1) T1135 is a Cdn REPORTING mechanism. But, as per the link I sent and my understanding from BIP's site:
For the purpose of reporting foreign property by Canadian investors, pursuant to section 233.3 of the Canadian Income Tax Act, Brookfield Infrastructure Partners is not a specified foreign property and therefore does not need to be reported on Form T1135 - Foreign Income Verification Statement.
2) I did not include any income from the K-1 form, on my CDN tax return, since all Brookfield assets were held in registered accounts.
3) I should not have to file a US tax return, since any US tax withheld would be the final US obligation. In an RRSP, there are no withholding taxes on U.S. stocks (or U.S. MLPs) - that is my understanding.
In a TFSA, there are 15% withholding taxes applied, so I should not hold my U.S. stocks inside the TFSA. That is my understanding.
Again, in either case, because withholding taxes either don't apply (RRSP) and they do apply (15% inside TFSA), I do not have do file any return with the IRS because withholding taxes if they applied are a final U.S. obligation.
Using the K-1 would only be important to me if I held these stocks inside a taxable Canadian account. Even then, my Canadian brokerage would have issued a T5013.
http://www.brookfieldinfrastructure.com ... -2633.html
After the end of Brookfield Infrastructure Partner's taxation year (December 31), the U.S. and Canadian taxable income of Brookfield Infrastructure Partners is determined and allocated to all unitholders that are in turn required to report such income in their respective tax returns. The allocation of U.S. taxable income is communicated using Schedule K-1 (not a Form 1099). The allocation of Canadian taxable income is communicated using Form T5013 (not a Form T5).
All unitholders should receive a Schedule K-1 from Brookfield Infrastructure Partners. We are required to use reasonable efforts to send a Schedule K-1 to all unitholders (not just U.S. residents). Consequently, Canadian unitholders may receive a Schedule K-1 in addition to Form T5013. In general, Canadian and Australian resident unitholders may disregard the Schedule K-1 (unless for example, they are a U.S. citizen).
Canadian registered holders of Brookfield Infrastructure Partners units will receive a T5013 directly from Brookfield Infrastructure Partners. All other Canadian unitholders should receive a T5013 that is produced by their Canadian broker. Brookfield Infrastructure Partners voluntarily provides Forms T5013 to assist Canadian unitholders with the accurate reporting of taxable income associated with the ownership of Brookfield Infrastructure Partners units.
Do I have this correct now?
*Sigh* Crazy this stuff...w
Thanks for the help nelson. BTW, are you a tax accountant? CPA?
So, just so I have this straight (since I cannot be the only BIP shareholder!)....
1) T1135 is a Cdn REPORTING mechanism. But, as per the link I sent and my understanding from BIP's site:
For the purpose of reporting foreign property by Canadian investors, pursuant to section 233.3 of the Canadian Income Tax Act, Brookfield Infrastructure Partners is not a specified foreign property and therefore does not need to be reported on Form T1135 - Foreign Income Verification Statement.
2) I did not include any income from the K-1 form, on my CDN tax return, since all Brookfield assets were held in registered accounts.
3) I should not have to file a US tax return, since any US tax withheld would be the final US obligation. In an RRSP, there are no withholding taxes on U.S. stocks (or U.S. MLPs) - that is my understanding.
In a TFSA, there are 15% withholding taxes applied, so I should not hold my U.S. stocks inside the TFSA. That is my understanding.
Again, in either case, because withholding taxes either don't apply (RRSP) and they do apply (15% inside TFSA), I do not have do file any return with the IRS because withholding taxes if they applied are a final U.S. obligation.
Using the K-1 would only be important to me if I held these stocks inside a taxable Canadian account. Even then, my Canadian brokerage would have issued a T5013.
http://www.brookfieldinfrastructure.com ... -2633.html
After the end of Brookfield Infrastructure Partner's taxation year (December 31), the U.S. and Canadian taxable income of Brookfield Infrastructure Partners is determined and allocated to all unitholders that are in turn required to report such income in their respective tax returns. The allocation of U.S. taxable income is communicated using Schedule K-1 (not a Form 1099). The allocation of Canadian taxable income is communicated using Form T5013 (not a Form T5).
All unitholders should receive a Schedule K-1 from Brookfield Infrastructure Partners. We are required to use reasonable efforts to send a Schedule K-1 to all unitholders (not just U.S. residents). Consequently, Canadian unitholders may receive a Schedule K-1 in addition to Form T5013. In general, Canadian and Australian resident unitholders may disregard the Schedule K-1 (unless for example, they are a U.S. citizen).
Canadian registered holders of Brookfield Infrastructure Partners units will receive a T5013 directly from Brookfield Infrastructure Partners. All other Canadian unitholders should receive a T5013 that is produced by their Canadian broker. Brookfield Infrastructure Partners voluntarily provides Forms T5013 to assist Canadian unitholders with the accurate reporting of taxable income associated with the ownership of Brookfield Infrastructure Partners units.
Do I have this correct now?
*Sigh* Crazy this stuff...w
Thanks for the help nelson. BTW, are you a tax accountant? CPA?
Yes, likely, but I still don't understand the implications. Sorry :(
Meaning, if these Brookfield assets are kept in registered accounts, hopefully nothing for me to do with the IRS - ever.
That's the clarification I need.
I need to know if I can ignore any K-1 Forms from Brookfield because I hold Brookfield assets in registered accounts. This means withholding taxes or any taxes for that matter don't apply to my tax-deferred RRSP OR worse case, I am hit with 15% withholding taxes inside my TFSA.
Sorry, I just want to be sure....
Even the IRS when I called them said "this is beyond me"!
Meaning, if these Brookfield assets are kept in registered accounts, hopefully nothing for me to do with the IRS - ever.
That's the clarification I need.
I need to know if I can ignore any K-1 Forms from Brookfield because I hold Brookfield assets in registered accounts. This means withholding taxes or any taxes for that matter don't apply to my tax-deferred RRSP OR worse case, I am hit with 15% withholding taxes inside my TFSA.
Sorry, I just want to be sure....
Even the IRS when I called them said "this is beyond me"!
Brookfield already answered that:
"In general, Canadian and Australian resident unitholders may disregard the Schedule K-1 (unless for example, they are a U.S. citizen)."
That means no filing in US.
"In general, Canadian and Australian resident unitholders may disregard the Schedule K-1 (unless for example, they are a U.S. citizen)."
That means no filing in US.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
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Re: Schedule K-1 (Form 1065) - what to do?
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