Q&A: Where to put MLPs?

Question: Thanks to your newsletters I am fairly okay with knowing if I should put a particular investment into either a registered or a non-registered account. When it comes to master limited partnerships (MLPs) listed in the U.S. such as Williams Partners (NYSE: WPZ), I am not so sure. Due to a healthy dividend, where should it go? – Bob R.

Gordon Pape answers: Nowhere. We do not advise Canadians to buy U.S.-listed master limited partnerships because of the onerous tax consequences. For starters, dividends from MLPs are subject to a withholding rate of 35%, according to a tax analysis published last year by RBC Wealth Management. To make matters worse, Canadians who own shares in MLPs are generally required to file a non-resident U.S. income tax return every year. Do you really want to get involved with the IRS if you don’t have to?

RBC also notes that the U.S. partnership income must be reported on your Canadian tax return as well and warns “there may be difficulty in obtaining adequate information to properly file a Canadian tax return”.