Perhaps we're overloading it :-)
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September [nn], 2000
Mr. Len Farber
By Fax to: (613) 992-4450 or by e-mail to firstname.lastname@example.org
Re: Draft Legislation on the Taxation of Non-Resident Trusts and Foreign Investment Entities
Dear Mr. Farber,
We are Canadian investors who legally own U.S. based Foreign Investment Funds. Some of the products we own are as follows: SSgA sponsored ETFs like SPYs, QQQs, DIAs, Sector SPYs and Mid Caps as well as Barclays iShares, WEBs and other US-based mutual funds.
The draft legislation, as proposed, changes the capital gains treatment that these products currently receive and deserve. This tentative legislation rescinds standard equity tax treatment that allows deferral of capital gains tax.
While it is theoretically possible for a Canadian to elect to be taxed only on his or her share of the income of the fund, this is not a practical option. The election requires that the fund's income be computed under special Canadian rules. A Canadian investor is not going to have access to the type of information that will be necessary in order to make these calculations. The U.S. based fund is not going to perform a second set of income calculations as Canadians are a small proportion of all investors. As a result the Canadian investors will be forced to pay capital gains on accrued but unrealized gains.
U.S. based mutual funds and ETFs (Exchange Traded Funds) annually distribute or allocate to Canadian investors all of the fund's income and capital gains. The distributions are reported and taxed under the current tax rules. There is unquestionably no intent by the Canadian investor holding these products to avoid tax in Canada.
The wording of the original 1999 Budget Plan plainly exempts and clearly differentiates the aboveboard U.S. based foreign investment entities from the complex tax avoiding trusts:
"The rules would not apply where the foreign-based investment fund annually distributes or allocates to Canadian investors all of the fund's income to which those investors are entitled." and "That investment funds situated in the United States not be subject to these rules since tax avoidance and deferral opportunities are not a concern through the use of such vehicles."
We respectfully request that the exemption for U.S. based Foreign Investment Funds be fully reinstated into this legislation.
For further information related to this submission refer to: http://www.bylo.org/usmfetftax.html