19. June 2009 by Dan Walkow, CFA, CMT.

For starters, investing in an MLP may result in a requirement to file a U.S. non-resident tax return. “The reason for this is that if the partnership is carrying on trade or business effectively connected with the U.S., each non-U.S. partner is treated as if they too carry on a trade or business located in the U.S.,” the expert wrote. “This treatment results in the obligation to file a U.S. tax return.”

But that’s only the beginning. Payments made from MLPs to Canadians are subject to non-resident withholding tax equal to the top U.S. marginal tax rate, which is 35 per cent. “This withholding is required regardless of whether the non-U.S. person is documented or undocumented,” the tax expert said.

Any excess U.S. withholding tax may be recovered on the annual non-resident U.S. tax return but that’s a hassle that most Canadians would rather avoid.

Of course, any income from MLPs must also be reported on your Canadian tax return. But there is a problem with that as well, says our expert. “Unless the limited partnership is targeted towards Canadian investors, there may be difficulty obtaining adequate information to properly file a Canadian tax return. The information provided by the U.S. limited partnership, using U.S. Form 1065 (Schedule K-1) for limited partner tax reporting, typically lacks sufficient detail to allow the taxpayer to convert the income from a U.S. tax basis to a Canadian tax basis. With the cooperation of the partnership, these difficulties may be overcome, but will typically increase the complexity and cost of the client’s personal tax return.”

Read the whole thing.

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19. June 2009 by Dan Walkow, CFA, CMT.

Buried in President Obama’s proposed regulatory overhaul is a change that could upend Wall Street: Brokers would be held to a higher “fiduciary” standard that would compel them to place their client’s interests ahead of their own.

Currently, brokers are only required to offer investments that are “suitable,” which means they can’t put clients in inappropriate investments, such as a highly risky stock for an 80-year-old grandmother. The move could change the way products are sold and marketed and even how brokers are compensated.

This will be a sea change for the brokerage industry who will be forced to be held to the same standard as Investment Advisors if this legislations gets past.

Read more on what the difference is between a broker and an investment advisor.

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