Wants to invest in U.S. limited partnership

Zoomer | January 1st, 2006

Q – I would like to invest US$100,000 in a U.S.-based limited partnership. What I have had difficulty in finding out is the tax implications of investing in the U.S. I am a Canadian citizen . I feel very comfortable investing with the company as the person who runs it is my cousin’s husband. His record has been outstanding . My concern are the tax implications. What kinds of taxes would be involved in this kind of investment? I would very much appreciate an answer. No one has been able to give me a clear and simple answer, my accountant included. – J.W., Campbell River, B.C.


A – First, let me stress that I am not an expert in cross-border taxes. That is the type of advisor you need, especially with such a lot of money involved. Since you live in Campbell River, you should make inquiries in Vancouver for a lawyer or tax accountant that specializes in such matters. Try some of the well-known accounting firms, like Ernst & Young or Dunwoody.


As a general rule, Canadians are not obligated to pay U.S. taxes on U.S.-based investments, as long as they are resident in this country. However, you are talking about a lited partnership here, so special rules may apply of which I am not aware. That’s why I recommend you speak to an expert in this field.


One final comment. Even though the advisor in question may be a family relative and perfectly honourable, I suggest you investigate the proposed deal very thoroughly before proceeding. Many U.S.-based limited partnerships are set up in such a way as to provide tax incentives to American investors to make them more attractive. You probably would not be eligible for any such tax breaks, so the deal will have to stand or fall on its investment value alone. It’s a lot of money. Be ultra-careful. – G.P.