FRFHF - US OTC tax treatment

[valueventures]

Hi All,

 

I'm a US-based investor and own FRFHF (US OTC) in a taxable account. While I have not sold any FRFHF to date, I am just trying to clarify my understanding of tax treatment.

 

• Dividends: Canada withholds 15% of dividend income, so US-based investors receive 85% of dividend income.
• Capital Gains: FRFHF is treated just like any other US-domiciled security traded on an exchange due to a tax treaty that exists between the US and Canada. My biggest concern is potentially being double-taxed on capital gains, but I do not believe this is an issue.

 

Could any other US-based FRFHF investors confirm or refute my understanding? Thanks in advance for your help!

[gfp]

6 minutes ago, valueventures said:

Hi All,

 

I'm a US-based investor and own FRFHF (US OTC) in a taxable account. While I have not sold any FRFHF to date, I am just trying to clarify my understanding of tax treatment.

 

• Dividends: Canada withholds 15% of dividend income, so US-based investors receive 85% of dividend income.
• Capital Gains: FRFHF is treated just like any other US-domiciled security traded on an exchange due to a tax treaty that exists between the US and Canada. My biggest concern is potentially being double-taxed on capital gains, but I do not believe this is an issue.

 

Could any other US-based FRFHF investors confirm or refute my understanding? Thanks in advance for your help!

 

As a US based investor with some FRFHF, I receive the entire $15 dividend, not 85% of it.  In years past, I remember a tax withheld and claiming the foreign tax paid at tax time.  This year, the entire $15 showed up in the account, and I believe it was the same last year as well.  The account I am checking holds FRFHF, not FFH.

 

You will not be double taxed on capital gains.  You will have the same treatment - short term or long term capital gains tax.

Edited April 21, 2025 by gfp

[gfp]

I just looked back a few years.  2022 return shows foreign tax paid (canada took their withholding on FRFHF dividend).  2023 and 2024 show no foreign tax paid (no withholding).

 

I know when they did the tender offer they were still withholding, because there was some kind of "deemed dividend" for part of the tender and it was split over two calendar years and made a real mess.  Serves me right for tendering any at all...

[dochood]

My family owns FRFHF in both taxable and non-taxable accounts (IRA's).  The taxable accounts are subject to the 15% withholding, which in turn can be used to reduce your US Tax on qualified dividends (ie. you shouldn't have double taxation) -- the 15% withholding is generally less than you would pay in US dividend taxes (although not always).

 

The shares held in the IRAs benefit from the US/Canada tax treaty - so, there is no withholding, similar to dividends received from US domiciled companies.  Not sure what happens with Roth IRAs.  I use Fidelity and they manage this process, other brokers/custodians require you to fill out a form.

[valueventures]

1 minute ago, dochood said:

My family owns FRFHF in both taxable and non-taxable accounts (IRA's).  The taxable accounts are subject to the 15% withholding, which in turn can be used to reduce your US Tax on qualified dividends (ie. you shouldn't have double taxation) -- the 15% withholding is generally less than you would pay in US dividend taxes (although not always).

 

The shares held in the IRAs benefit from the US/Canada tax treaty - so, there is no withholding, similar to dividends received from US domiciled companies.  Not sure what happens with Roth IRAs.  I use Fidelity and they manage this process, other brokers/custodians require you to fill out a form.

Great, thank you! What is your understanding of capital gains tax? That's my bigger concern given that the dividend is relatively small.

[valueventures]

33 minutes ago, gfp said:

I just looked back a few years.  2022 return shows foreign tax paid (canada took their withholding on FRFHF dividend).  2023 and 2024 show no foreign tax paid (no withholding).

 

I know when they did the tender offer they were still withholding, because there was some kind of "deemed dividend" for part of the tender and it was split over two calendar years and made a real mess.  Serves me right for tendering any at all...

Very helpful, thank you!

[dochood]

2 hours ago, valueventures said:

Great, thank you! What is your understanding of capital gains tax? That's my bigger concern given that the dividend is relatively small.

You pay capital gains taxes in whichever country you reside for tax purposes (US or Canada) - I've never sold any FRFHF from the taxable accounts.  Apparently there are some small exceptions, but they wouldn't apply to shares in FFRFH. 

 

One of the principals of the US-Canada Income Tax Convention (69 pages of gobbledygook, also known as a tax treaty) is no double-taxation.  So, your understanding is correct.  Hope that helps.

[gfp]

Anyone have any clue why IB and Fidelity stopped withholding Canadian tax on my FRFHF dividends for the last two tax years?  Other Americans aren't seeing that?  Strange, since it is multiple brokers and multiple different people / accounts.

[Dinar]

2 minutes ago, gfp said:

Anyone have any clue why IB and Fidelity stopped withholding Canadian tax on my FRFHF dividends for the last two tax years?  Other Americans aren't seeing that?  Strange, since it is multiple brokers and multiple different people / accounts.

Do you hold your shares in an IRA?  If so, there is no Canadian tax.  

[gfp]

7 minutes ago, Dinar said:

Do you hold your shares in an IRA?  If so, there is no Canadian tax.  

 

These are taxable shares I'm asking about. I own Fairfax in every nook and cranny I can find but the tax treatment I am asking about is for the taxable account FRFHF holdings.  I haven't checked taxable FFH shares because it's slightly more involved for me to check.

[73 Reds]

23 minutes ago, gfp said:

 

These are taxable shares I'm asking about. I own Fairfax in every nook and cranny I can find but the tax treatment I am asking about is for the taxable account FRFHF holdings.  I haven't checked taxable FFH shares because it's slightly more involved for me to check.

Schwab withholds the Canadian tax on my shares but I really don't mind and its not that big of a deal since the withholding is credited back at tax time.  I do recall this issue came up a long time ago and when I inquired, Schwab advised that upon request it would waive the withholding but I don't know whether that still holds true.

[Munger_Disciple]

45 minutes ago, gfp said:

 

These are taxable shares I'm asking about. I own Fairfax in every nook and cranny I can find but the tax treatment I am asking about is for the taxable account FRFHF holdings.  I haven't checked taxable FFH shares because it's slightly more involved for me to check.

 

Schwab withholds Canadian dividend tax for all taxable US accounts; no withholding for IRAs. 

[valueventures]

2 hours ago, 73 Reds said:

Schwab withholds the Canadian tax on my shares but I really don't mind and its not that big of a deal since the withholding is credited back at tax time.  I do recall this issue came up a long time ago and when I inquired, Schwab advised that upon request it would waive the withholding but I don't know whether that still holds true.

Do you have to take any action on your tax returns to facilitate the withholding being credited back?

[gfp]

5 minutes ago, valueventures said:

Do you have to take any action on your tax returns to facilitate the withholding being credited back?

 

Yeah, but it's listed on your 1099 from the broker as Foreign Tax Paid.  You have to enter it in and not skip over it when preparing your taxes to receive credit for foreign tax paid.

[Santayana]

3 hours ago, valueventures said:

Do you have to take any action on your tax returns to facilitate the withholding being credited back?

Fill out Schedule 3.

[valueventures]

Thanks everyone.

 

One follow-up question: would someone be able to confirm that Fairfax does not have PFIC issues for US-based investors? I believe just Fairfax India has PFIC issues.

[gfp]

14 minutes ago, valueventures said:

Thanks everyone.

 

One follow-up question: would someone be able to confirm that Fairfax does not have PFIC issues for US-based investors? I believe just Fairfax India has PFIC issues.

 

Fairfax Financial is not a PFIC.