A 'Passive Foreign Investment Company' (PFIC) is defined under U.S. tax law. PFIC rules are intended to prevent U.S. taxpayers from securing preferential tax treatment, such as tax deferral, from investing in foreign securities in comparison with U.S. domestic securities. "Passive" is not meant to reflect on the investment strategy of the ETF: both active and passive ETFs can be "Passive" for this purpose.
In this context, "Passive" means stocks and bonds are used to generate income and capital gains as opposed to operating an active business.
How to check if you are holding PFIC ETFs
For investors who file U.S. tax returns and want to avoid the negative consequences of owning a PFIC, Wealthsimple recommends you check the assets in your portfolio and refer to the websites of these assets to determine if PFIC annual information statements exist.
For example, Blackrock ETFs are PFICs, and information about annual statements is available here.
Check the assets held in your portfolio by following the below steps –
- Log into your Invest & Save account by visiting my.wealthsimple.com
- Scroll down to the Invest heading
- Select the account you'd like to explore
- Under the Portfolio heading in the right-sidebar, select View holdings
- Review the holdings in your account
- Refer to the website of each fund to find out if they are PFICs