Tag Archives: u.s. citizen

Investments Effectively Prohibited To Canada U.S. Dual Citizens

“There has been a lingering question about the US tax treatment of Canadian Mutual Funds in taxable accounts.  This discussion does not apply to investments in RRSP accounts.  In early 2010, the Internal Revenue Service issued a determination that most Canadian Mutual Funds are corporations for US tax purposes, even though they are organized as trusts under Canadian law.  Because they are corporations, most Canadian Mutual Funds are Passive Foreign Investment Companies (PFIC).

A PFIC investor has burdensome US tax reporting as well as potentially confiscatory taxation.  If a PFIC provides certain required information, the tax burden can be lessened, but this is not practical for must Canadian Mutual Funds.

There are two solutions—one short-term and one permanent.  On a short-term basis you can report income on a “marked to market” basis in your US income tax return.  This means that the change in value during the year will be reported as ordinary income.  This, of course will, require additional valuation information each year, but it will avoid potential tax and interest charges that have the potential to exceed 100% of the income from the investment.

The second solution, and the one I recommend is divest your portfolio of all foreign mutual funds and invest in individual security issues.  While this may not sound like a sensible solution for the Canadian investor, but it is the price of being a U.S. taxpayer.”

Bradley Kirschner – Seattle Based CPA

Thank you Mr. Kirschner for the succinct advice! Continue reading

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