# U.S. Master Limited Partnerships



## My Own Advisor (Sep 24, 2012)

OK Forum, been some time I've posted something original so here's a chance to test my thinking on this subject... taxation of U.S. Master Limited Partnerships (MLPs) as a Canadian investor. Here's goes....

As a Canadian investor in some U.S. MLPs, I believe this income is treated as Foreign Income Reporting. So, while I get K-1/Form 1065 from some U.S. MLPs (listing this asset as a "Foreign Entity"), I do not need to file anything with the IRS.

Rather, as a Canadian investor, I DO need to file this with CRA....unless: I hold my U.S. MLP in a TFSA or RRSP or RRIF or LIRA.....since U.S. MLPs and assets inside those types of registered accounts are not subject to Foreign Income Reporting.

https://www.pwlcapital.com/en/Advis.../March-2014/Tax-Tip-Do-I-Need-to-File-a-T1135

"Luckily, investments held inside Canadian registered accounts (RRSP’s, RRIF’s, TFSA’s etc.) are exempt from this reporting requirement, as are foreign securities held by Canadian mutual funds and ETF’s. This means the average investor only has to worry about non-registered accounts and foreign bank accounts."

Thoughts friends?


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## OptsyEagle (Nov 29, 2009)

I am not an expert but I believe that a MLP is a lot like the old Canadian income trusts where the companies avoid taxation by paying out all the cash flow to the partners (shareholders). Due to this distinction from regular dividend paying US corporations, a MLP will withhold something like 35% tax as opposed to 15% tax (on US dividends), on foreigners. As a Canadian you would be a foreign owner if you owned a US MLP.

Now, in a non registered account you would get a foreign tax credit for the 35% tax withheld. The unfortuneate part comes if it is held in an RRSP or a TFSA. In both cases the US will withhold 35% tax but the Canadian investor will not be able to recoup this investment, since it is in a tax exempt account.

So a MLP is different then a US dividend stock. In a US dividend stock, they do not withhold the 15% tax if it is held in an RRSP, but they do withhold the 15% tax if it is held in a TFSA. As said above, the 35% tax on MLP is withheld in any Canadian account and only in a cash account can the Canadian investor recoup this.

Yes. Only in a cash account will you need to record this income on your Canadian tax return, but as said above, you have still lost 35% of your distributions to US taxation.

That is my understanding.


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## My Own Advisor (Sep 24, 2012)

Thanks Optsy, but what about any reporting to the IRS?

Thoughts?


As a Canadian, I can see the ability to recoup the withholding tax via foreign income reporting in a taxable account. As you say, there are benefits in avoiding any foreign income reporting holding U.S. MLPs or U.S. stocks inside TFSA and/or RRSP or RRIF for that matter.

I'm thinking the IRS _should have taken_ their withholding tax for anything inside the TFSA right off the top?


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## Numbersman61 (Jan 26, 2015)

My Own Advisor said:


> Thanks Optsy, but what about any reporting to the IRS?
> 
> Thoughts?
> 
> ...


By investing in a US MLP, you are deemed to be carrying business in the US and must file a US tax return
https://www.irs.gov/Individuals/International-Taxpayers/Partnership-Withholding


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## My Own Advisor (Sep 24, 2012)

Thanks Numbersman, I'll check that out!


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## RBull (Jan 20, 2013)

Run Forrest, run!


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## My Own Advisor (Sep 24, 2012)

I'm worried now


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## RBull (Jan 20, 2013)

No comment on the actual investment-just hassle with filing US taxes and from what I see 39.6% withholding.


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## My Own Advisor (Sep 24, 2012)

Well, I'm not sure. 

I called CRA last night, they told me as a Canadian investor, MLPs are reported as Foreign Income. Inside RRSP and TFSA, no Foreign Income is reportable.

Also:
http://www.digitaljournal.com/life/...butions-for-canadian-taxpayers/article/385952

I just called IRS, woman said "out of scope for us". ??

Sigh. Lesson Learned, blogpost(s) to follow!


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## Numbersman61 (Jan 26, 2015)

My Own Advisor said:


> Well, I'm not sure.
> 
> I called CRA last night, they told me as a Canadian investor, MLPs are reported as Foreign Income. Inside RRSP and TFSA, no Foreign Income is reportable.
> 
> ...


Best to check with Canadian US Tax accountant. In order to file US tax return, you need to obtain IRS identification number which are not easy to get. After 9-11 the US made it difficult to obtain - you need to get one through an IRS Acceptance Agent. I was going to try to prepare our US tax returns but our application for a number kept getting rejected. A local lawyer who was an IRS Acceptance Agent was charging $250 just to get the number. In the end, we went to a local accountant who specialized in Canada US tax - his cost for getting number and preparing returns $600.


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## My Own Advisor (Sep 24, 2012)

Thanks Numbersman.

This is a mess. 

I can't be the only Canadian that invests in BIP or other Brookfield stocks in registered accounts?? Does every Brookfield investor have to deal with this I wonder?


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## Numbersman61 (Jan 26, 2015)

My Own Advisor said:


> Thanks Numbersman.
> 
> This is a mess.
> 
> I can't be the only Canadian that invests in BIP or other Brookfield stocks in registered accounts?? Does every Brookfield investor have to deal with this I wonder?


I'm not sure which US investments you but here is a link re BIP
http://www.brookfieldinfrastructure.com/content/investor_relations/tax_information-2633.html
A cursory review indicates that BIP may have been structured to avoid US tax filing problems


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## My Own Advisor (Sep 24, 2012)

Thanks 

I read this as well from the link....

"All unitholders should receive a Schedule K-1 from Brookfield Infrastructure Partners. We are required to use reasonable efforts to send a Schedule K-1 to all unitholders (not just U.S. residents). *Consequently, Canadian unitholders may receive a Schedule K-1 in addition to Form T5013. In general, Canadian and Australian resident unitholders may disregard the Schedule K-1 (unless for example, they are a U.S. citizen).
*
Canadian registered holders of Brookfield Infrastructure Partners units will receive a T5013 directly from Brookfield Infrastructure Partners. All other Canadian unitholders should receive a T5013 that is produced by their Canadian broker. Brookfield Infrastructure Partners voluntarily provides Forms T5013 to assist Canadian unitholders with the accurate reporting of taxable income associated with the ownership of Brookfield Infrastructure Partners units."

So, the way I see it with BIP:

1) If I hold this asset in my USD RRSP, then no T5013; no taxable income; no withholding taxes.


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## Numbersman61 (Jan 26, 2015)

The key is that BIP has no effectively connected income since the US operations are conducted through a wholly owned subsidiary.


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## My Own Advisor (Sep 24, 2012)

I'm going to confirm that with Investor Relations, I hope you are right 

Update as of 9:30 pm - the K-1/Form 1065 is really designed for U.S. tax filers and not Canadian investors. BIP Investor Relations confirmed "Canadian unitholders may receive a Schedule K-1 in addition to Form T5013. In general, Canadian and Australian resident unitholders may disregard the Schedule K-1 (unless for example, they are a U.S. citizen)."

This is because for taxable account, BIP shareholders will receive a T5013 from their Canadian brokerage. 

If investors hold BIP.UN or BIP inside the RRSP, then no T5013 will be issued because that is a tax-deferred account (i.e., no sense in getting a T5013 for an asset that has tax income sheltered).

Makes more sense now.... 

I am going to continue to see if I get the same updates from the rest of the Brookfield family, I hope so.


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## Eclectic12 (Oct 20, 2010)

RBull said:


> No comment on the actual investment-just hassle with filing US taxes and from what I see 39.6% withholding.


Both of which other posters have said in the past ... which is why I avoid them. :biggrin:


Cheers


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## Eclectic12 (Oct 20, 2010)

Numbersman61 said:


> Best to check with Canadian US Tax accountant.
> 
> In order to file US tax return, you need to obtain IRS identification number which are not easy to get. After 9-11 the US made it difficult to obtain - you need to get one through an IRS Acceptance Agent ... In the end, we went to a local accountant who specialized in Canada US tax - his cost for getting number and preparing returns $600.


Yikes!

I suppose having filed a US tax return while working in the US and having a SSN gives me an advantage ... if I was willing to buy these things.



Cheers


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