Fidelity joins MacKenzie to make ownership of #PFIC mutual funds more tolerable for Canadians

A Canadian received a message from his financial adviser that included:

Mutual Funds, U.S. Taxes, and Your Clients

PFIC

With the new rules coming into place, we are the only firm I know of that is providing the ability to file a QEF election for the 2013 tax year. Therefore if you have any clients with us that are US persons and file US taxes, we have the ability to provide Annual Information Forms for all their holdings that they can use in conjunction with Form 8621 to file a QEF election with the IRS.

We can provide Annual Information Statements for all of our funds. In providing these statements, we simply need to know which of your client’s need them; since we have no way of knowing whether your clients are “US persons”. Once we know which of your clients’ need the Annual Information Form, we will prepare and send them to you.

The bottom line is:

Fidelity Canada appears to be the second Canadian mutual fund company to market their Canadian mutual funds in such a way that investors can avoid the default S.1291 confiscation taxation scheme. Fidelity is providing the “paperwork” which allows fund investors to take either the “QEF” election or “mark-to-market” election  (which are the least punitive of the three PFIC elections).

As you know a “critical mass” of opinion takes the position that Canadian mutual funds are PFICs.  A mutual fund, deemed to be a PFIC, can be taxed in three different ways. Those who are interested are invited to read our submission – PFICs and the taxation of Americans Abroad – to the Senate Finance Committee. Leaving aside the technicalities, this “co-operation” by Fidelity makes it possible for investors to get most of the benefits of investing in Canadian mutual funds (although they will in some cases have to pay tax on money they have not received). It’s important to note that this does NOT give  Canadians with “U.S. taint” the same benefits as other Canadian residents (they will still have to pay tax on distributions they do not actually receive). But, it will allow them to avoid the confiscatory effects of the S. 1291 rules.

These actions by MacKenzie and Fidelity will force the other fund companies to follow.

Highlights from the Fidelity announcement include:

Fidelity is helping investors comply with U.S. PFIC tax rules

Fidelity knows there is concern among investors about the U.S. Passive Foreign Investment Company (PFIC) rules and is taking a leadership position in the industry by making this option available to Canadian investors who are classified as “U.S. persons” under U.S. tax law. These rules could significantly affect “U.S. Persons” who hold Canadian mutual funds, so we are working hard to provide you with all the available information about these complex rules.

We believe it is important for those  who may be affected by these rules to have the knowledge necessary to make informed decisions. However, we also believe that investors affected by these rules should not make changes to their Canadian holdings without first speaking with their advisers and a U.S. tax specialist.

Fidelity will provide PFIC Annual Information Statements for all of our mutual funds for the 2013 tax year. We expect to be able to provide PFIC Annual Information Statements for those funds prior to the April 2014 U.S. tax reporting deadline for individuals.

This appears to be a response (at least in part) to the new FATCA reporting requirements on individuals which require that mutual funds be reported to the IRS.

Conclusion: By serving the IRS, the Canadian mutual fund companies are serving their customers.

 

 

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