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.