This is what Acclaim IR said...
The 15% falls in accordance with the tax treaty between countries � the government of Canada made sure of this before proposing it. And, yes it does mean that the 15% withholding will begin to be deducted from IRA accounts, beginning in January.
Thanks for your interest � let me know if I can answer any other questions.
Director, Investor Relations
Acclaim Energy Trust (AE.UN)
tel (403) 539-6343
<<I think it is unlikely that the IRS will allow us to get a US tax credit for the tax on the ROC portion.>>
I don't see why not. The IRS says we can't take a credit on foreign tax paid but not owed. But that has now changed, as Canada has decided that tax is owed on ALL distributions to US unitholders and no refund can be paid. Therefore, even the tax on ROC is owed and a credit should be allowed.
I should add that I do not think the US taxing body gives two hoots about this. Canada gets to tax us and that makes them happy. The IRS doesn't allow a deduction for Canadian taxes on ROC, but they get a nice fat capital gains tax thanks to the ROC, so they are happy. The US government is happy because they have more of your money to spend and borrow against. The only one not happy is you, the most insignificant component of this bureaucratic equation. You can write to your state legislator (congressman or senator), but I do not think there are enough CRT owners to swing an election that is 2 years away as well. A more productive approach IMO would be to settle down in your favorite chair with a "Jack and Coke" (or equivalent) and read a good book or ponder decreasing global energy supplies while hoping for all of us to have a miserably cold, wet, and prolonged winter and spring.
Many of us hold these CRTs' in our taxable accounts. I think it is worth discussing the effect of the new law from the taxable account perspective. If the entire distribution is taxed 15%, hopefully we can then claim a tax credit. However, I presume the CRT is still going to be split out into dividend and ROC figures at year end. I think it is unlikely that the IRS will allow us to get a US tax credit for the tax on the ROC portion. Additionally, don't forget that there is more damage to be done in taxable accounts when the time comes to sell the CRT. If you have held the stock for several years there will be a significant lowering of basis (all of the cumulative ROC) and there will be a much larger capital gains tax to pay on the "profit".
The same kind of phenomena occurs with US MLPs. The distribution is a combination of several components, one of which is ROC. The ROC portion lowers the basis just as it does with CRTs. The hope is that the underlying stock appreciates enough to cover the additional tax. The main difference here is that there is no income tax on the ROC as opposed to the new Canadian tax starting in Jan 05 on CRTs.
MLPs here in the US usually pay 6-9% distributions whereas the CRTs pay 10 to 14%. All in all, it probably still makes sense to own the CRTs and they will likely continue to give a better distribution over MLPs even with the new tax. We should also keep in mind that this ROC tax on taxable accounts has been going on de facto for years. While US citizens were allowed to apply for a refund of ROC taxes witheld, it has been virtually immpossible to actually accomplish this. Therefore the tax has been around for years once the illusion of getting a refund is removed.
I am only talking about taxable accounts here, not IRAs. Since I hold my CRTs in taxable accounts only, I do not see much change occurring, other than not ever having to think about filling out all that paperwork for those NR-7 forms again.
My UNDERSTANDING but may be imperfest is that: proposed legislation is brought to the table (for discussion) and read 3 times, each time it is brought forward it is termed "tabled", The third and final time is the one in which to be concerned.
As I asked someone early, that also appeared to be tracking, does anyone know which reading this is???
The above is my personal understanding gained from reading and could well be incorrect, if a Canadian versed in his country's polictical process would step forward it would be big help.
"You are correct. In Canada when a bill is tabled it is brought forward for consideration. Since this is actually a modification of previous proposals it is likely (but no guarantee) to get fairly quick passage."
As it is referred to as the "budget" bill, does it not imply if budget is passes so is the new withholding rules?
You are correct. In Canada when a bill is tabled it is brought forward for consideration. Since this is actually a modification of previous proposals it is likely (but no guarantee) to get fairly quick passage.
At last a breath of fresh air on this subject.The after tax yields are exceptional on many of theses trust. We should all be thankful that they are available to us. Good luck to all.
<<If what you say is true we're all in big trouble if we hold these trusts in an IRA.>>
Why should we be?
What it boils down to is, do you know a better investment elsewhere? One that you believe will provide a better return? If not, the CanRoys are still a good investment.
This discussion of the verb "to table" is interesting, but I recall that the previous taxing attempt was "tabled" as well. That did not mean "enacted", but "put into the process" or "laid out for consideration". It did not pass and was withdrawn. In the context of this new bill, does "tabled" mean "passed or enacted" or just "brought forward for consideration"?