what is the basis cost of PFIC?

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tony
Posts: 90
Joined: Tue Oct 18, 2016 8:50 pm

what is the basis cost of PFIC?

Post by tony » Wed May 16, 2018 1:51 pm

I have had mutual funds long before I became a US resident.
Suppose I had mutual fund A in 2010 and then came to US to work in 2016 and then sold that mutual fund in Jan 2, 2017.

How to calculate the gain of the profit? what is the basis for that mutual fund cost? Is it the original price in 2010? Or, in the year I became a US person in Jan 1, 2017?
(Note: 2017 is the first filing tax 1040).

thanks

nelsona
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Post by nelsona » Wed May 16, 2018 1:57 pm

There a re two issues here.
First, your funds (assuming they are not in a TFSA or RESP) were subject to deemed disposition upon departure from Canada. If that is the case, then they got a new cost basis for cap gain determination based on that (there is a procedure to follow when you first arrived) for US purposes. if you avail yourself of that procedure, then the deemed disposition price is the cost basis.

If you decided not to use this procedure, or if your PFICs are in a TFSA or RESP, then the normal "original" cost basis applies.
Nelsona Non grata. Non pro. Search previous posts.

tony
Posts: 90
Joined: Tue Oct 18, 2016 8:50 pm

Post by tony » Wed May 16, 2018 2:36 pm

They're NOT TFSA or RESP just ordinary mutual fund and I did deemed disposition when I left Canada.

If i did it,
1. Does the cost basis MUST follow that sell & buy when I left Canada?
2. Can i choose to use the original cost basis? This option is better for me because those funds are losing money actually. So that, I can use the loosing money to offset my new mutual funds now.

thanks again Nelsona.

nelsona
Posts: 15184
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona » Wed May 16, 2018 3:59 pm

You need to look at the procedure.

Rev proc 2010-19.

You cannot pick and choose which investments you had will use the procedure. They must either all have new cost basis or all have old cost basis. In fact if your deemed disposition was an overall loss, then you can't use the election at all.

In your case it may be better to not make the lection for any of your investments.
Nelsona Non grata. Non pro. Search previous posts.

tony
Posts: 90
Joined: Tue Oct 18, 2016 8:50 pm

Post by tony » Wed May 16, 2018 4:51 pm

Nelsona,
Let me clarify your answer again.
Are you saying that if all funds are loosing money, I am NOT allowed to choose original price as the cost basis?

(Actually, not all loosing money but some fund may win only $10 but others loosing a lot. Therefore, in total combined, those funds obviously loosing money. Is it considered under this clause?)

thanks

nelsona
Posts: 15184
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona » Wed May 16, 2018 5:04 pm

The sum gain of the basket of investments that were subject to deemed dispo must be positive to be allowed to use the procedure (think of it: why would you not want to benefit from those overall losses). If you hold an overll losing position, then you cannot use the procedure, and that may mean that some winning positions will not benefit from the bump up.

Its easy to check. You submitted form T1243 with your departure return. That has all the info you meed to make your decision, or determine that you can/can't/should use the election.
Nelsona Non grata. Non pro. Search previous posts.

tony
Posts: 90
Joined: Tue Oct 18, 2016 8:50 pm

Post by tony » Thu May 17, 2018 9:54 am

understood.
Thanks Nelsona.

So, with no election & overall funds is a loss.
Can that loss be used? (assuming it is sold in the first year when I become a US resident)

nelsona
Posts: 15184
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona » Thu May 17, 2018 10:34 am

yes. Losses can be used when you sell, as if you had always been in US, which is the normal way US treats cap gains/losses, even for newer residents.
Nelsona Non grata. Non pro. Search previous posts.

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