The link below is a short PDF of an old message by a Canadian trust investor explaining ROC. Of NOTE:
1) ROC in this limited context is quite different than most US investors view it; and
2) Easterner's (JM) primary language is French although his English is quite good it may take a second to adjust to his sentence structure and usage.
Give it a read, also I am having some new thoughts on effectiveness of ROC for taxable accounts when there is a blanket foreign tax involved (ie CRS collects 15% of GROSS distributions EVEN if part of distribution is ROC).
The CRS tax on the ROC portion is not allowed by IRS and is impractical to claim for refund from CRS. Therefore, this causes an ultimate greater total tax between the two federal collections vs a non ROC distribution.
Since a non ROC distribution is taxed by CRS at 15% of gross but is IRS allowable in total you MAY/should receive more after tax with the non ROC distribution depending on the vagarities of your specifc form 1116.
Of course in this discussion I have ignored the time delta involved with the IRS recovery of the deferred ROC and assumed it takes place in the same taxable year as the distributions.
Just some mental ramblings on a weekend evening but when I have looked at this a bit more, I may well rethink holding Canadian trusts with ROC components in my taxable account.
Of course if held in an IRA/Roth then neither ROC nor CRS with holding apply, so the big laugh maybe completely opposite most current thinking in that it is really better to hold the ROC units in your IRA, lol!!
this post was written 5 days ago.......just now got it posted.....
still reading your first message of this thread and not done.
did go to the site mentioned.....is this a canadian citizen writing of trust from his canadian point of view?
did not see canadian mention in article/post..........sounds like what could also be written by american from american point of view.
in either case, if is canadian from canadian point of view...how much carryover is applicable to american owning canadian?
not trying to tilt your canoe.......just curious.........
will study more.......and eventually read rest of thread.....if already addressed there......ignore my slower than usual nature.......
other wise like the article/post for simplifying the general concept........of trusts and ROC.
as to your #1..is this because we just refer to it as depletion here?
as to effectiveness of american ROC in american taxable account...is great if does not interfere with margin deductibility and you have limited memory on adjusting basis...as many do..........not a recomendation
Not sure if you are refering to the link on ROC? If so, it is written by a Canadian strictly from a Canadian view. I would suggest that what he has written applies to a US holder within the limits of tax code differences.
I only have a hazy remembrance of the IRS specifics so I'll just give the broad concept. For a US holder/taxpayer to legitimately claim ROC on a Canadian holding, that company must make certain special separate (from their normal Canadian requirements) calculations.
This can cause one of two outcomes:
1) the company decides not to make the calc and therefore does not declare any ROC pass through to its US holders; or
2) the company does the calculations and declares the pass through amount for its US holders
A) due to the different tax year end dates, the REAL ROC is calculated in the May time frame for the prior tax year; and
B you may and will get numerous 1099 corrections from your broker (for 02 and 03 I barely made the August extension deadline)
C) due to the different ROC calculations demanded by the two countries your US ROC probably will be a different (usually lessor) amount than your Canadian counterpart.
D) Each case/company is different for ROC issues, the investor need to do full DD, first place I go is company website and check their Tax Section under foreign/US for past years.
E) Some of these trusts may exhibit a "we don't need American funding and care less if you invest in us", surprised me the first time or two when talking to company IR departments (My perception was this was predominantly a french canadian thing).
i think another over looked value is the cnd. dollar/American dollar...
is another way ot taking adv. of the weak dollar.
on that subject...
I am still trying to guess what is ahead with all of the boomers about to retire.
That means fewer tax dollars (boomers not paying as much in taxes now) and
greater deficits. I see a job boom no matter who wins the elections,
but still, due to the deficits I see high rates, and one of the following: rising taxes, change in tax code, or social programs getting canned.
These years are going to be interesting� Anyone care to guess what happens when
Other countries like Asia stop buying our dollars to mess with the currency ex. rate?
Am I the only one worried or is anyone else?
Thanks for your comments:
I personally have been trying to educate myself a little on Canroys, but find he CRS tax withholding to be quite a pain. I would probably hold positions in a non Taxable U.S. IRA account and I have been told that brokerages are unpredictable to some degree in whether they withhold tax on distributions. I have not looked at the dreaded from 1116 yet, but since in the scheme of things I am a relatively small investor, I dont find that very appealing either.
I do believe in the oil and ng sector long term though...
Thanks for your comments and enjoy all the information. Please continue to inform us on Canroys...
Sam in Michigan
Sam: you don't have to file an 1116 if your total distributions received $300 or less, so I guess it depends on how you define "small" investor.
Also, no unpredictability on the U.S. listed CanRoys ERF and PGH(no IRA "accidents").