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Ed Johnson
Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10760
Experience:  GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
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I own 100 units of fording canadian coal trust as a us citizen.

Customer Question

I own 100 units of fording canadian coal trust as a us citizen. Fording is selling it's assets to teck cominco limited. I'll be compensated $82us less ca withholding tax which is unknown. Currently the unit price is about $79.65us. How will canada's wt impact settlement since it will be based as ordinary income? What % of settlement should I expect?
Submitted: 8 years ago.
Category: Tax
Expert:  Ed Johnson replied 8 years ago.



Thank you for your question.


The canadian U.S. tax treaty allows Canada to tax this first. You will have to report this on your U.S. tax return as well, but you will get credit for taxes paid to Canada.


Tax witholding on selling Canadian interest is 25%.



Ed Johnson and 3 other Tax Specialists are ready to help you
Customer: replied 8 years ago.
Ed- I have clicked the accept link so I assume you have recieved payment. Your answer is helpful. thank you. the interest is held in a keogh acct but I expect canada will still withhold regardless.
Expert:  Ed Johnson replied 8 years ago.



Yes, I received payment, thanks.


All indications are, based on the information you have provided, that withholding will be 25% of any interest. However, let me add this, that I did not include before.


If they recognize your non-resident status as a U.S. Citzen, then they can limit with-holding to 15% pursuant to tax treaty benefits between a special agreement between Canada and the U.S.:


so in the end analysis, your income tax withholding could be as little as 15% but not more than 25%.


this is the statement from the offer that regards taxes. you may already have this:


Holders of units should be aware of the Canadian income tax consequences of the arrangement summarized under "Certain Tax Considerations for Unitholders - Certain Canadian Federal Income Tax Considerations" in Fording's management information circular dated September 6, 2008, including the treatment of amounts payable to holders of units under the arrangement. In particular, for Canadian federal income tax purposes, Fording expects that all or substantially all of the distributions and other amounts payable to holders of units under the arrangement, including all cash amounts and the fair market value of any Class B subordinate voting shares of Teck, will constitute ordinary income to holders of units and, in the case of non-resident holders of units, will be subject to Canadian non-resident withholding tax. This income inclusion cannot be offset by capital losses, if any, recognized as a result of the arrangement. Taxable holders of units who are resident in Canada and who hold their units on capital account and holders of units who are not residents of Canada will want to consider disposing of their units on the Toronto Stock Exchange (the "TSX") or the New York Stock Exchange ("NYSE") with a settlement date that is prior to the closing date of the arrangement and should consult their own tax and investment advisors with regard to this decision. Holders of units who decide to dispose of their units are advised that: (a) the TSX is expected to establish special trading rules for the three trading days preceding the closing date of the arrangement to facilitate settlement prior to the closing date of trades occurring on the TSX during that three day period; and (b) the NYSE is expected to halt trading in the units during the three trading days prior to the closing date of the arrangement and as such, holders of units will not be able to trade their units on the NYSE during such three day period and trades over the NYSE made prior to such three day period should settle in accordance with the NYSE's typical T+3 settlement cycle prior to the closing date of the arrangement.