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Baytex Energy Corp. Message Board

  • parkridge77 parkridge77 Sep 15, 2006 7:25 PM Flag


    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?

    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)
    Result 22% tax total

    If you have BTE in a regular account AND sell after a year,
    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!

    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.

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    • 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.


      • 2 Replies to arbtrdr
      • 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.

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