PFIC (Passive Foreign Investment Company) Annual Information Statements related to a U.S. investor’s Qualified Electing Fund (“QEF”) election for the year ended December 31, 2019, are available below:
|Tax Treatment if
Held Over 1 Year
|Sprott Physical Bullion Trusts*
15% or 20%
Taxed at capital gains tax rate**
|Precious Metals: Coins, Bullion, ETFs
Taxed at collectibles tax rate
|*||Requires the timely filing of a QEF form for your tax return.|
|**||15% for single filers earning under $400,000; 20% for married filers earning over $450,000 and single filers earning over $400,000.|
How are precious metals taxed? The IRS considers precious metals to be collectibles like art, rare books and fine wine. Provided you hold it for more than 1 year, the capital gains tax on your net gain from selling a collectible is 28%. This level of tax is considerably higher than the tax rate on most net capital gains, which is an average of 15% for most taxpayers, according to the IRS.1 If you sell a collectible in less than one year, the proceeds will be taxed as ordinary income.
Special U.S. federal income tax rules apply to holders of the Sprott Physical Bullion Trusts because they are classified as Passive Foreign Investment Corporations (PFICs) by the IRS. If a U.S. non-corporate holder makes a timely QEF election each year by filing IRS Form 8621 with their federal income tax return, it will generally mitigate the otherwise adverse U.S. federal income tax consequences of owning precious metals via coins, bullion or ETFs. Capital gains will be taxed at either 15% or 20% depending on the holder’s specific personal situation.
“PFIC” stands for “Passive Foreign Investment Company.” A foreign corporation such as the Sprott Physical Bullion Trusts (“the Trusts”) will be treated as a PFIC for any taxable year if either of the following is true: (a) more than 75% of its gross income is from passive sources or (b) at least 50% of its assets are held for the production of passive income.
The Trusts have been PFICs since their inception and it is expected the Trusts will continue to be treated as PFICs for each of their taxable years.
Yes, The Trusts can be held in an IRA.
A U.S. taxable investor who does not make either a QEF election or a mark-to-market election for that year is subject to special rules, with respect to: (1) any gain realized on the sale, exchange, redemption or other disposition of the units and (2) certain distributions with respect to the Units. Very generally, under these special rules, any gain realized on the sale of units is treated as ordinary income and is subject to an interest charge on the deferred tax liability during the investor’s holding period.
The PFIC rules do not apply to a pension or profit sharing trust or other tax-exempt organization that did not borrow funds or otherwise use leverage in connection with its acquisition of the units.
No, the Trusts do not issue K-1s.
|1||The information provided is general in nature and is provided with the understanding that it may not be relied upon as, nor considered to be, the rendering or tax, legal, accounting or professional advice. Readers should consult with their own accountants and/or lawyers for advice on the specific circumstances before taking any action.|
Sprott Physical Bullion Trusts
Sprott Asset Management LP is the investment manager to the Sprott Physical Bullion Trusts (the “Trusts”). Important information about the Trusts, including the investment objectives and strategies, purchase options, applicable management fees, and expenses, is contained in the prospectus. Please read the document carefully before investing (available here). Investment funds are not guaranteed, their values change frequently and past performance may not be repeated. This communication does not constitute an offer to sell or solicitation to purchase securities of the Trusts.
The risks associated with investing in a Trust depend on the securities and assets in which the Trust invests, based upon the Trust’s particular objectives. There is no assurance that any Trust will achieve its investment objective, and its net asset value, yield and investment return will fluctuate from time to time with market conditions. There is no guarantee that the full amount of your original investment in a Trust will be returned to you. The Trusts are not insured by the Canada Deposit Insurance Corporation or any other government deposit insurer. Please read a Trust’s prospectus before investing. The information contained herein does not constitute an offer or solicitation to anyone in the United States or in any other jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation. Prospective investors who are not resident in Canada or the United States should contact their financial advisor to determine whether securities of the Funds may be lawfully sold in their jurisdiction. The information provided is general in nature and is provided with the understanding that it may not be relied upon as, nor considered to be, the rendering or tax, legal, accounting or professional advice. Readers should consult with their own accountants and/or lawyers for advice on the specific circumstances before taking any action.
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