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Baytex Energy Corp. Message Board

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  • arbtrdr arbtrdr Sep 17, 2006 1:53 PM Flag

    YE OLD CANROY TAX QUESTION

    A Canroy is taxed exactly the same as any other stock except the Canadians withhold 15% and you can get the 15% back when you file your US taxes (with a few exceptions, but they rarely apply).

    The big difference is you do NOT get a 15% credit for Canadian taxes withheld if you hold in a regular or Roth IRA.

    Thus -

    #1 in a Roth you pay 15% at the time of dividend.

    #2 in a regular IRA you pay 15% at the time of the dividend and your ordinary income rate when you withdraw the money. In your example 52%

    #3 in a short term holding you pay 15% at the time of dividend and 22% more when you file your taxes (37% less a 15% credit)

    #4 in a long term holding you pay 15% when dividend is paid and get a 15% credit when you file your taxes for that year. You then pay the capital gains rate (currently 5% or 15%) when you file taxes for the year you sell.

    My comment is holding in a regular IRA is not good. Other than that you need to decide. Your regular account STCG calculation is not correct in that you pay at ordinary income rates (37%) while the Canadian tax is simply netted out by the US cdedit. Similarly you pay 15% to the US on a STCG (plus your state tax) with the Canadian tax being credited back by the US.

    Last comment. After 2010 the 15% LTCG rate goes away and is currently stlated to go to 25% I believe. A Democratic Congress and/or President would make that happen.

    ARB

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    • ARB,
      Thanks for taking the time to answer so thoroughly-MUCH
      appreciated. I'm going to run some numbers to see how it actually breaks down when I do the math. Also---your last comment very well taken for the long pic view and something
      to cocnsider in long range planning.

      Just had dinner a friend who has his own hedge fund- he
      says he'd put $ in Brazilian 8 year zeros-- 15% return
      linear, 26% all in --so in his exmaple, he put down about
      4.9 million which will net 15 million in 8 years --but that
      doesn't include any risk of currency fluctuations. He
      thinks Brazil is just at the beginning of expansion with
      that bet- obviously. If you have access to Bloomberg,
      you type in JBRL5 60, look under 8 year bonds. Because he did this a while ago-- you might have to go out to 10 years to get the same yield. This is all new terriotory for me--
      but thought I'd mention it as another possible option
      out there to check out.
      Thanks again for all your time and informed input.
      Park

 
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