For US citizens and green card holders living in Canada, last checked October 30, 2026
PFICs in Canada: Canadian ETFs, Mutual Funds and Form 8621
Canadian ETFs and mutual funds that work well for Canadians can be expensive for a US citizen. Here is why they are usually PFICs, how the IRS taxes them, when Form 8621 is needed, and the choices you have, from the IRS instructions.
Quick answer
Are Canadian ETFs and mutual funds PFICs?
Usually, yes. A foreign corporation is a PFIC if 75% or more of its income is passive or at least 50% of its assets produce passive income (Form 8621 instructions), and a Canadian fund that holds a portfolio of stocks or bonds generally meets that test. A US person files a separate Form 8621 for each PFIC each year it applies, unless an exception fits, such as total PFIC holdings of US$25,000 or less (US$50,000 joint) with no sale or large distribution. Without an election, gains are taxed at the highest rate plus interest, which is why many US citizens in Canada choose US-listed funds instead.
How PFICs are taxed
From the Form 8621 instructions. A separate election is needed for each fund.
| Treatment | How it works | What it needs |
|---|---|---|
| Excess distribution (section 1291, the default) | Nothing is taxed until you sell or receive a large distribution. Then a gain, or the part of a distribution above 125% of the prior three years' average, is spread back over your holding period and taxed at the highest rate for each year, plus interest. Gains are not capital gains. | No election. This is what applies if you do nothing. |
| QEF election (section 1295) | You include your share of the fund's ordinary earnings and net capital gain each year, keeping capital gain treatment. | A PFIC Annual Information Statement from the fund every year, and the election made by the return due date for the first year. |
| Mark-to-market election (section 1296) | Each year you include the rise in the fund's value as ordinary income; declines are deductible only up to earlier inclusions. | The fund must be marketable stock, generally regularly traded on a qualifying exchange. Elected by the return due date. |
Who files Form 8621
A US person who owns a PFIC directly or indirectly files Form 8621 for the year if they (IRS):
- receive a distribution from it, or sell or otherwise dispose of it;
- are reporting under a QEF or mark-to-market election, or making an election;
- must file the annual report required by section 1298(f).
One form per fund, attached to your return by its due date including extensions. Joint filers can file one form per fund. You can use your annual account statements to value the holding.
The US$25,000 exception
For a fund taxed under the default excess distribution rules, no Form 8621 is needed for the year if, on the last day of your tax year, all your PFIC holdings together are worth US$25,000 or less (US$50,000 on a joint return, or US$5,000 for funds held indirectly), and you had no excess distribution or gain from that fund (Treas. Reg. 1.1298-1(c)(2)). The test counts every PFIC you own, including those under an election. It does not cover a fund for which you are reporting a QEF or mark-to-market election.
Canadian accounts: RRSP, TFSA and non-registered
| Account | PFIC position | Source |
|---|---|---|
| RRSP and RRIF | Funds inside an arrangement treated as a foreign pension fund under a treaty, where income is taxed only when paid out, do not need Form 8621. RRSPs and RRIFs get that treaty deferral automatically under Rev. Proc. 2014-55, which itself does not mention PFICs, so this is how the two rules fit together. | Treas. Reg. 1.1298-1(c)(4), Rev. Proc. 2014-55 |
| TFSA | No IRS source treats a TFSA as a pension arrangement, so funds inside it are generally treated like funds held directly. See how to report a TFSA. | No IRS guidance |
| Non-registered account | Fully subject to the PFIC rules above. | Form 8621 instructions |
Your options
- Hold US-listed funds instead. A US-domiciled ETF is a US entity, not a foreign corporation, so it is not a PFIC. Many US citizens in Canada use them in non-registered accounts and TFSAs. Canadian tax and currency points still apply.
- Ask the fund for a PFIC Annual Information Statement. If the fund company provides one, it allows a QEF election and keeps capital gain treatment. Without it, a QEF election is not practical, because the IRS accepts other documentation only in rare cases by private letter ruling (Treas. Reg. 1.1295-1(g)).
- Consider mark-to-market for exchange-traded funds. Simpler records, but every year's gain is ordinary income.
- If you have held funds for years without electing. Selling triggers the excess distribution calculation for the whole holding period. Model it before you sell; a later election can bring purging rules into play.
When to get help
PFIC calculations are fund-by-fund and year-by-year, and mistakes compound. A licensed US CPA can tell you which funds are PFICs, what each election would cost and how to fix missed years.
- You have held Canadian funds for several years and never filed Form 8621
- You plan to sell Canadian funds or move them out of a non-registered account or TFSA
- You want to make or check a QEF or mark-to-market election
- Your funds are inside a corporation, trust or a spouse's account
- You also missed FBAR or Form 8938 years; see IRS amnesty and Streamlined filing
Common questions
Are Canadian ETFs PFICs for US citizens?
Generally yes. A Canadian ETF holding a portfolio of stocks or bonds usually meets the PFIC passive income or passive asset test. A US-listed ETF is not a PFIC.
Do I need Form 8621 for each Canadian fund?
Yes. A separate Form 8621 is filed for each PFIC, unless an exception applies, such as total PFIC holdings of US$25,000 or less (US$50,000 joint) with no sale or excess distribution.
Do funds in my RRSP need Form 8621?
Generally no. PFICs held inside an arrangement treated as a pension fund under a treaty, where income is taxed only when paid out, are excepted, and RRSPs and RRIFs get that treaty deferral automatically.
Do funds in my TFSA need Form 8621?
No IRS source exempts TFSAs, so funds inside a TFSA are generally treated like funds held directly.
What is a PFIC Annual Information Statement?
A statement from the fund giving your share of its ordinary earnings and net capital gain. It is required to make a QEF election.
What happens if I sell a Canadian fund I never reported?
Under the default rules the gain is spread over your holding period and taxed at the highest rate for each earlier year, plus interest. Get the calculation done before or right after selling.
Sources
Every rule and figure on this page links to the IRS, CRA or other official source it comes from. Amounts change; we re-check them before each engagement.
- IRS: Instructions for Form 8621 (Rev. December 2025)
- eCFR: Treas. Reg. 1.1295-1(g), PFIC Annual Information Statement
- eCFR: Treas. Reg. 1.1298-1(c), exceptions to filing Form 8621
- IRS: Rev. Proc. 2014-55 (RRSPs and RRIFs)
Gurleen Kaur, CPA licensed in British Columbia and Washington State. Last updated October 30, 2026. This page is general information, not tax or legal advice for your situation.
Related guides: TFSA and PFIC, Indian mutual funds and PFIC, FBAR and FATCA, IRS amnesty.
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