Chuck Bao
4/13/2008, 03:28 PM
I understand that if you sell mutual fund units and make a profit, you are subject to a capital gains tax when you file your own personal income tax (assuming that it is not part of an IRA or 401k plan).
My question is whether the mutual fund (and in this case, we are assuming they did quite well, allowing you to make profit on selling your units) had already paid a capital gains (or profits tax) when the fund sold the shares or instruments in the fund’s investment portfolio. Is this right? In effect, are you paying capital gains taxes twice, or am I missing something here?
Okay and what if you were investing in a developing market fund and that particular developing market fund was investing in a foreign country that has a double taxation treaty with the US and one of the provisions of the tax treaty is that capital gains earned on trading shares in a market in that particular country are not subject to capital gains taxes.
Does the US-based fund then not have to pay capital gains tax in the US? Then why would you need to pay capital gains tax on profits on selling the fund. Or if you still have to, then why not invest directly and skip out on the capital gains tax altogether?
My accountant has never heard of double taxation treaties with foreign governments involving capital gains. And, double taxation treaties should be public information.
I understand that tax loopholes shouldn’t be advertised. But, surely someone can clarify this issue.
My question is whether the mutual fund (and in this case, we are assuming they did quite well, allowing you to make profit on selling your units) had already paid a capital gains (or profits tax) when the fund sold the shares or instruments in the fund’s investment portfolio. Is this right? In effect, are you paying capital gains taxes twice, or am I missing something here?
Okay and what if you were investing in a developing market fund and that particular developing market fund was investing in a foreign country that has a double taxation treaty with the US and one of the provisions of the tax treaty is that capital gains earned on trading shares in a market in that particular country are not subject to capital gains taxes.
Does the US-based fund then not have to pay capital gains tax in the US? Then why would you need to pay capital gains tax on profits on selling the fund. Or if you still have to, then why not invest directly and skip out on the capital gains tax altogether?
My accountant has never heard of double taxation treaties with foreign governments involving capital gains. And, double taxation treaties should be public information.
I understand that tax loopholes shouldn’t be advertised. But, surely someone can clarify this issue.