Taxation of Investments Owned by United States Persons

• Identify types of accounts that a United States Person may have to report under the Report of Foreign Bank and Financial Accounts (FBAR), such as:
  • Personal financial accounts for which they own or have signing authority
  • Commercial financial accounts at a business for which they may have ownership or signing authority
  • Trusts for which they have signing authority
  • Estates for which they have signing authority
• Define types of foreign corporations denoted under the Internal Revenue Code of the United States, such as:
  • Controlled Foreign Corporations (CFC)¹
  • Passive Foreign Income Company (PFIC)²
• Identify that any United States Person who as a shareholder owns greater than 10% of the stock in a Controlled Foreign Corporation (CFC) must report and include a share of the income of the corporation in their personal income.
• Identify plans where a United States Person may be responsible for reporting the ownership of a passive foreign income company, such as:
  • Non-Registered
  • Registered Education Savings Plan
  • Tax-Free Savings Account
• Identify types of investments that may be considered a Passive Foreign Income Company, such as:
  • Canadian mutual funds
  • Canadian Exchange Traded Funds (ETF)
  • Canadian income trusts
  • Canadian pooled funds
• Identify when a United States Person may be exempted from reporting ownership of a passive foreign income company (PFIC), specifically knowledge such as:
  • No distributions from the passive foreign income corporation (PFIC) occurred during the year
  • No dispositions of the passive foreign income corporation (PFIC) occurred during the year
  • Year-end value of all passive foreign income corporations (PFICs) held is less than $25,000
  • The passive foreign income corporation (PFIC) is held in a registered pension plan, Registered Retirement Savings Plan or Registered Retirement Income Fund
• Identify that there may be tax implications when holding passive foreign income corporations (PFIC).
• Explain the tax treatment applied to a passive foreign income corporation (PFIC) owned by a United States Person who fails to report and file an election for the passive foreign income corporation (PFIC) they own, specifically knowledge such as:
  • Any gains upon disposition or distributions received from the passive foreign income corporation (PFIC) during the year greater than 125% of the average distributions received during the previous three years will be taxed as ordinary income (i.e. Back to the commencement of ownership of the passive foreign income corporation (PFIC)
  • Amounts allocated to prior years will be taxed at highest marginal tax rate and subject to interest
• Identify that the passive foreign income corporation (PFIC) rules do not apply in the first year of owning the PFIC.
• Identify that there may be additional U.S. tax impacts for an individual with a business interest in a private Canadian corporation.
• Identify factors that an individual should consider before renouncing their citizenship to avoid the reporting and tax requirements of a United States Person, such as:
  • Legal and tax filing
  • Tax filing requirements
  • Expatriation tax
  • Administrative costs
  • Loss of access to enter United States
  • Loss of ability to work in United States
  • Loss of potential benefits to current or future children of being U.S. person
  • Loss of voting privileges in United States
  • Amount of potential current and future tax being saved

Investing in Canadian Registered Plans by United States Persons

• Explain how registered retirement savings plans owned by United States Persons are treated by the Internal Revenue Service, specifically knowledge such as:
  • Deductibility of contributions
  • Growth of assets while assets remain in plan
  • Income earned within plan
  • Withdrawals from plan
• Identify the impact of employer contributions to a Registered Pension Plan (RPP) or Deferred Profit Sharing Plan (DPSP) for United States Persons residing in Canada when completing their United States tax return.
  • Non-deductibility of contribution amount
  • Contribution taxable when vested
  • Excluded from foreign earned income exclusion
  • Foreign tax carryover credit may be applicable