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Linn Energy, LLC Message Board

  • shuching4 shuching4 Mar 23, 2008 11:22 PM Flag

    Jrad52 Help

    Thanks your previous inputs. Can you advise what level of interest does a conroy have to offer to equal the 13% now paid by line. I'm talking after tax yields.I think because of candain witholding and other differences- yeilds of mpls cna be lower on paper and yet offer higher post tax returns. Do you have any thoughts on this issue. TIA SC4

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    • Well, I'm not jrad52, and don't have his demonstrably expert knowledge on taxation of these securities, I can volunteer this:

      * The Canadian withholding is currently 15%. You will definitely get the first $600 of that back if you hold your Canroys in a taxable account (in an IRA you get nothing back. How much more you get beyond that is subject to some complicated rules.

      * The Canadian withholding is slated to increase to 25% in 2010

      * The current 15% US tax on qualified dividends is an historical anomaly and will probably go away in the near future

    • There's no one answer to your question.

      First, the yield on an MLP is tax deferred (mostly, depending on the MLP), and the timing of your tax depends on when you sell. If you are a buy and hold person, you can control the timing of the tax, and you should discount the tax rate significantly to reflect the long time before taxes will be paid.

      Generally, when the distributions become taxable (when you sell), most of them are taxed at ordinary income rates.

      Second, there are differences in the level of tax deferral for MLPs. On this board, we were discussing BBEP, which only had 50% tax deferral in 2007. On the other hand, I own MLPs with almost 100% tax deferral. So you can't generalize about when the taxes will be paid.

      Third, I sold my Canadian royalty trusts some time back, so I have no current information about them. But when I did own them, different Canadian royalty trusts had made different tax elections in the US. I think ERF was treated as a corporation, so its distributions were either qualified dividends or return of capital distributions. If you held the stock more than a year, the return of capital distributions esentially were taxed at long-term capital gains rates. If you held less than a year, they were taxed as short-term capital gains. Other Canadian royalty trusts elected to be taxed as trusts in the US, and their distributions were taxed completely differently to US shareholders. Then you add in the Canadian withholding tax, which is based on Canadian concepts of income and return of capital.

      So I don't think you can come up with a meaningful numerical relationship between the 2.

      • 1 Reply to jrad52
      • Jr
        Thanks .Overall, I'm a long term holder who wants to buy these products for the income. I originally thought that the conroys were yielding more so that they were neting more.But given the different tax treatments, this is not always the case.
        I own harvest and pwe but am going to sell part of the harvest to buy more line. You mention that you sold your conroys? the question is did you do that because of yield considerations or because you thought their future was dimmer than the mpls. The should be a way to develop a modle which allows one to deal with these issues thought clearly they are very complex.
        Thanks so much for your first reply as it serves to undereline how complex things really are. I feel less foolish. That doe snot mean though that I don't wnat to try and get to the bottom of it. tia your thoughts.

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