The Internal Revenue Service (IRS) provided additional clarification recently related to the taxation of a non- US mutual fund, non-US pooled fund trust or other foreign investment that is classified as a Passive Foreign Investment Company (PFIC). The IRS clarified that Canadian-based mutual funds or pooled fund trusts will generally be considered corporations for U.S. tax purposes regardless of whether these funds are organized as trusts for Canadian tax purposes. U.S. persons that invests in Canadian-based mutual funds or pooled fund trusts may be subject to the harsh U.S. tax rules that apply to PFICs.

U.S. persons owning shares of a PFIC that receive material distributions (e.g., large dividends and capital gains) may be subject to U.S. tax at top marginal rates instead of regular marginal rates or lower rates for long-term capital gains, as well as an interest charge. It may be possible to claim some of the U.S. tax as a foreign tax credit on your Canadian tax return to minimize your overall tax burden.

The PFIC rules are complex. We can suggest possible strategies that will avoid these harsh tax implications.

Please contact us for more information.