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New Rules for U.S. Taxpayers in Canada with Mutual Funds

January 23, 2014 By Cardinal Point Wealth

This article by Cardinal Point’s Terry Ritchie and James Sheldon discusses important new rules for U.S. taxpayers who hold Canadian mutual funds in non-registered accounts. The IRS recently released temporary regulations regarding Passive Foreign Investment Companies (PFICs). This act impacts nearly all Canadian mutual funds and Canadian-traded ETFs held outside registered accounts.

As a result of FATCA, U.S. citizens who hold PFICs must “file an annual report containing information as may be required by the Treasury Secretary,” which includes U.S. taxpayers living in Canada. They must file IRS Form 8621 and take one of two elections: Qualified Electing Fund (QEF) or Mark-to-Market Election. The new disclosure requirements may reveal U.S. taxpayers in Canada who haven’t filed IRS Form 8621 with their annual U.S. tax returns. U.S.- and dual-citizens in Canada are advised to discuss these issues with their advisors and prepare for the changes in tax compliance and any enforcement implications.

Filed Under: Americans Living in Canada, Articles, Canada-U.S. Financial Planning Articles, Cross-border Tax Planning, interviews, Investment Management Articles Tagged With: Americans living in Canada, Canada-U.S. financial planning, Cross-border tax planning, Investment Management, PFIC

How US PFIC Rules Can Impact Your Clients

May 23, 2013 By Cardinal Point Wealth

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Cardinal Point’s Terry Ritchie discusses the impact of U.S. PFIC (Passive Foreign Investment Company) tax rules on U.S. citizens living in Canada who hold Canadian mutual funds or ETFs. The challenge is that under U.S. tax law, the earnings and dividends from these PFICs are not taxed the same way in the U.S. as they are in Canada, resulting in very high tax rates.

The PFIC rules require the filing of Form 8621 for each PFIC owned. The taxpayer can make one of two elections. The first would be to treat the PFIC as a “qualified electing fund” (QEF). The QEF election lets the taxpayer distinguish between capital gain and ordinary income of the PFIC. However, Ritchie knows of only one Canadian mutual fund company that files the QEF. The second option is the mark-to-market election, in which all the year’s earnings are taxed as ordinary income at the highest marginal tax rate in the U.S. Ritchie’s advice to those in this situation is to avoid holding Canadian mutual funds/ETFs, find the Canadian mutual fund company that offers QEF statements, or own a portfolio of individual securities.

Filed Under: Americans Living in Canada, Articles, Canada-U.S. Financial Planning Articles, Cross-border Tax Planning, Investment Management Articles, Video Tagged With: Americans living in Canada, Canada-U.S. financial planning, Cross-border tax planning, Investment Management, PFIC

Americans in Canada Facing Obamacare Surtax

May 6, 2013 By Cardinal Point Wealth

tritchie-obamacare

In this video segment, Terry Ritchie, cross-border tax and estate planning expert, discusses how a new measure in the Patient Protection and Affordable Care Act, also known as “Obamacare,” could result in a surprise for U.S. citizens living in Canada. Effective for 2013, a 3.8% surtax will be imposed on passive income such as interest, dividends, rental property, and capital gains.

As Ritchie points out, the challenge is that foreign tax credits will likely not offset the 3.8% Obamacare tax on net investment income. This means that individuals earning more than $125K and couples earning more than $250K may be taxed on passive income for the first time in 2013. Ritchie asserts that there are no clear options to avoid or minimize the surtax at the moment, so advisors are wise to make their clients aware of this measure.

Filed Under: Americans Living in Canada, Articles, Canada-U.S. Financial Planning Articles, Cross-border Tax Planning, Video Tagged With: Americans living in Canada, Canada-U.S. financial planning, Cross-border tax planning, Obamacare Surtax

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"Cardinal Point" is the brand under which the dedicated professionals within the independent Cardinal Point Group of Companies collaborate to provide financial and investment advisory, risk management, financial planning and tax services to selected clients. Cardinal Point comprises two legally separate companies: Cardinal Point Wealth Management Partners, LLC, a U.S. registered investment advisor and Cardinal Point Capital Management ULC is a U.S. registered investment advisor and a registered portfolio manager in Canada (ON, QC, MB, SK, NS, NB, AB, BC). Advisory services are only offered to clients or prospective clients where the independent Cardinal Point firms and its representatives are properly registered or exempt from registration. Each firm enters into client engagements independently. This website is solely for informational purposes. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital.