Old Trader

Commodities for Income Investors

The 15% tax is on unit distributions which are usually, but not always, paid monthly. Forgot to clarify that in my comment above.

Commodities for Income Investors

AprilMay,

You're confusing MLPs with CanRoys. The K-1 issue involves any MLP, regardless of whether its Canadian, US, or from Botswana. Canroys don't have the same issue, at this point in time, although as Crude Oil Trader pointed out above, because of a revision in Canadian tax laws, due in a couple of years, it IS possible that some of the current Canadian Royalty trusts may convert to a MLP structure. Others may just opt. to become "regular" corporations.

The Canadian income trusts are very similar to US REITs, in that in order to main trust status, they MUST pay the bulk of their income out to unitholders. There are no taxes paid at the trust level, only at the unit holder level. This accounts for the high yield they've typically paid. The downside (there IS no free lunch) is that, again, like a REIT, if they wish to expand, they either have to pile on debt, OR issue additional shares, causing dilution to existing shareholders. Currently, there's a 15% tax on US holders of units. Because of tax treaties between the US and Canada, a US holder can offset this against his US taxes, although this option is not available if the units are held within a tax-advantaged vehicle (IRA or 401k).

Naturally, tax laws/regs are always subject to change, so consult with your tax adviser.


On May 30 12:28 PM April May wrote:

> An unbelievable nightmare! I own several Canadian partnerships and
> a few in America. You will receive a K-1 instead of a 1099 from each
> of them at tax time, and quite late at that (end of March, early
> April). You'll need an accountant to report those figures properly
> on your income tax return (seekingalpha.com/symbo...). I
> have prepared my own tax returns for over 40 years, and yet I was
> stumped when trying to decifer those energy K-1's. Even the IRS booklets
> didn't help me.
>
> Is it worth the tax headaches in April? I'm not sure yet. If you
> usually use a CPA at tax time, then it shouldn't matter to you.
>
>
> Why did I take a chance? High dividends lured me. But LP's dividends
> aren't really dividends in the eyes of the IRS--they are a distribution
> of the partnership's earnings and must be reported on a separate
> IRS form, and not with other "real" dividends. It is quite complicated.
> You also report other activities of the partnership such as depreciation.
>

Commodities for Income Investors

I'd be somewhat cautious about getting into the CanRoys, only because of the upcoming changes in their structure (basically, they're being abolished). Having said that, I do own 2 (PVX and PWE), but both have been long term holdings in my core portfolio.

Regarding coal, there's no question that the current administration is NOT a fan of coal, so if one were looking at coal, a producer of met coal might be a better bet, assuming that at some point, steel production will turn around.