Updated Checked by the Tax-Services.ca editorial team How we check
A PFIC is a passive foreign investment company, and it is a US tax term, not a Canadian one. The IRS treats a foreign corporation as one if 75% or more of its gross income is passive, or if half or more of its assets produce passive income. It matters only if you file US returns.
Why does a PFIC come up for Canadians?
This page assumes you mean the tax term, since that’s what PFIC means in finance. The word shows up in Canada because some people in Canada are US persons and still file with the IRS. For them, a fund or company based outside the US can be a PFIC, and the IRS has special rules for it.
Think of Nina, a US citizen who has lived in Ottawa for years and files in both countries. She buys a fund through her Canadian bank, thinks nothing of it, and only hears the word PFIC from a preparer at tax time. That’s how it usually goes.
Whether a particular Canadian fund is one is a question for US tax law and for that fund. Nothing here can say yes or no for a named product, and none were checked. The IRS instructions for Form 8621 discuss the tests, so start there.
If none of this applies to you, stop here. No PFIC form exists on the CRA side.
What does the IRS ask you to file?
US persons generally file Form 8621 for each PFIC they hold. The IRS says to file in five situations: you receive distributions from a PFIC, you recognize a gain when you dispose of the shares, you report a qualified electing fund or mark-to-market election, you make another election listed in Part II, or you file an annual report required by the Code.
| Question | What the IRS instructions say |
|---|---|
| Income test | 75% or more of gross income is passive |
| Asset test | At least half of average assets produce passive income or are held for it |
| How many forms | One Form 8621 for each PFIC |
| Small holdings | Part I can be skipped at $25,000 or less in total PFIC stock ($50,000 on a joint return), unless you had excess distributions or gains |
| Indirect holdings | Part I can be skipped at $5,000 or less |
Those thresholds come from the IRS instructions for Form 8621, revised December 2025, which we re-read in November 2026. The exception for $25,000 or $50,000 applies only if you had no excess distribution and recognized no gain on the fund. The IRS had not shown a newer revision for 2026 returns, so read the current form before you rely on any figure.
Is there a Canadian form that looks like this?
Not the same thing, but close enough to trip people up. The CRA’s Form T1135 page is where the foreign income verification statement lives. It covers specified foreign property, and Canadian residents whose foreign property cost more than $100,000 at any time in the year must file it. Which of your holdings count as specified foreign property is a CRA definition, so read it first. Our pages on foreign property tax for Canadian residents and reporting foreign income explain the Canadian side.
Two different countries, two different forms, and neither one replaces the other.
What does the tax look like? A Canadian-side example
Only the Canadian half can be shown. Say you live in Ontario with $80,000 of other taxable income and sell units of a fund for a $10,000 gain. The capital gains tax calculator shows $1,482.50 of extra Canadian tax, because half the gain is added to your income. That’s about 14.8% of the gain, a ballpark for what the CRA would take. The same gain under US PFIC rules can work out very differently, and our tools don’t model that.
Distributions are a separate Canadian question. If a fund pays you dividends rather than capital gains, use the dividend tax calculator. To compare what an investment returned before any tax, try the ROI calculator. For how Canada taxes the gain itself, see capital gains tax in Canada.
What should you do first if you think you hold a PFIC?
Take it in order. First, confirm you really are a US person for tax purposes. Second, list every fund and foreign company you hold, including ones inside registered accounts. Third, ask the fund or your bank what information it can give you about its income and assets, since the tests depend on that. Fourth, read the Form 8621 instructions to see which of the five filing situations fits your year.
It’s slow work, but doing it once means you don’t repeat it in a panic every spring.
What goes wrong most often?
Assuming a fund is fine because your Canadian bank sold it to you. The PFIC tests look at what the company is, not where you bought it. So a fund can be a PFIC for a US person even when everything about it looks ordinary in Canada.
The second is forgetting the form in a year with no sale. Distributions and elections also trigger Form 8621, so a quiet year isn’t always a no-filing year.
If you really are a US person with foreign funds, a tax preparer who does both US and Canadian returns earns the fee here, and our page on whether you need a Canada US tax accountant lists what to ask. If the US side also involves a nonresident return, see 1040NR for Canadians. No fees were verified for this page.
Where did we check this?
In November 2026 we read the IRS instructions for Form 8621 (revised December 2025) for the PFIC definition, the five filing situations and the thresholds. The T1135 rule comes from the CRA’s foreign reporting pages, which we read earlier. The example uses our 2026 federal and Ontario data and the 50% capital gains inclusion rate, which holds for 2026 because Finance Canada’s release of September 15, 2026 lists the cancellation of the proposed increase. This website has no connection with the CRA or the IRS.
Frequently asked questions
What does PFIC stand for?
Passive foreign investment company. It is a US tax term, defined in the IRS instructions for Form 8621. A foreign corporation is a PFIC if at least 75% of its gross income is passive, or if at least half of its average assets produce passive income or are held to produce it.
Do I report a PFIC to the CRA?
There is no PFIC form for the CRA. The CRA has Form T1135 for specified foreign property costing more than $100,000 at any time in the year. Which holdings count is a CRA definition, and the two forms are separate, so filing one does not replace the other.
Who files Form 8621?
US persons, including US citizens living in Canada, who hold a PFIC and receive certain distributions, recognize a gain, report a qualified electing fund or mark-to-market election, make another listed election, or must file an annual report. One form is filed for each PFIC, attached to the US return.
Is every Canadian mutual fund a PFIC?
We could not confirm that for any named fund. It depends on US tax law and on the fund, and the PFIC tests look at what the company is, not where you bought it. Ask the fund or your bank what it can tell you about income and assets, then read the IRS instructions.
Is there a minimum holding before Form 8621 is needed?
Part I can be skipped when your PFIC stock is worth $25,000 or less on the last day of the year ($50,000 on a joint return), or $5,000 for an indirect holding in a section 1291 fund, unless you had an excess distribution or recognized a gain. Other parts of the form can still apply.
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