I thought I was clear on tax issues, but find some lingering confusion. Would appreciate some clarification here from those in the know-- can't decide in which account to buy BTE: ROTH IRA OR in a regular account.
I read here that it is preferrable to have a Canroy in a regular account vs. an IRA for 15% foreign tax credit. But is it better to have it in a regular account vs. a ROTH IRA is my question.
How many times are Canroy profits taxed? It just once by Canadian government- which I understand affects all account categories including Roths? Or does the US government levy yet another tax on top of that-- which then Roths would potentially avoid, making ROTHS indeed preferrable to a regular account for Canroys, despite the 15% foreign tax credit available only to a regular account.
Three scenarios-- are these right?
1) If your Canroy is in a regular account AND sell before 12 months and are in the 37% US tax bracket the breakdown is: 15% Canadian tax 37% US tax ( plus State but not factoring that) 15% Result 22% tax total
2) If you have BTE in a regular account AND sell after a year, breakdownis: 15 % Canadian government tax 15% US tax ( state tax not included) 15% foreign tax credit
so in essence you only pay whatever your state tax is, which in my cae is 7% NY- OUCH!
3) If you have a ROTH account AND sell, whenever, the breakdown is: 15% Canadian tax No US tax
IS that correct or is it taxed the same as a regular account? Thanks to anyone for taking the time to clarify. Park
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.
#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, 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