Sprott Physical Silver Trust Tax Information
The Sprott Physical Bullion Trusts potentially provide favorable tax advantages versus owning metals directly or precious metals ETFs.
|Tax Treatment if
Held More Than 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% long-term capital gains tax rate for single filers earning between $40,000 to $441,450 per year; 20% long-term capital gains tax rate for married filers earning over $496,600 per year.|
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 his or her 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.
Frequently Asked Questions
1. What is a PFIC?
“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.
2. Are the Trusts PFICs?
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.
3. What are the tax advantages for U.S. investors as a result of the Trusts being PFICs?
- Normally, all long-term capital gains on investments in precious metals (including gold, silver, platinum and palladium) are subject to a 28% collectibles tax rate (short-term capital gains are subject to a 10% to 37% tax rate in 2021). Losses on the disposition of precious metals are treated as capital losses which can only be used to offset capital gains and $3,000 of ordinary income.
- But because the Trusts are PFICs, a U.S. individual investor is eligible for long-term capital gain tax rate (a maximum rate of 15% or 20% depending on income) on the sale or redemption of their units, including a redemption for physical bullion. In order to be eligible for the capital gain tax rate, a U.S. taxable investor must make a Qualifying Electing Fund (QEF) election with respect to each Trust and must have held the units for more than one year at the time of the sale.
- Any U.S. taxable investor can make a QEF election, which is made on IRS Form 8621 that is filed with the investor’s annual U.S. income tax return.
- The QEF election must be made with the tax return for the first year in which the investor acquired shares of the Trust. The election is made only once and is maintained by reporting the investor’s pro rata share of the Trust’s ordinary earnings and net capital gain on Form 8621 as described in Item 8 (“What are the other consequences of the Trusts being PFICs?”). Note that while the election is made only once, the investor will have to file a Form 8621 with the investor’s annual income tax reports to report the income from the Trust as described in Item 8. If an investor acquires additional units, a new election is not necessary with respect to such units as the existing election will automatically apply to such newly acquired units.
4. Where can I find IRS Form 8621 and instructions on how to complete it?
- IRS Form 8621 can be downloaded here: https://www.irs.gov/pub/irs-pdf/f8621.pdf
- Instructions for IRS Form 8621 can be downloaded here: https://www.irs.gov/pub/irs-pdf/i8621.pdf
5. Where can I find the necessary information for my QEF filing and annual reporting?
- �The Trusts will annually provide each U.S. taxable investor with all necessary information in order to make and maintain a QEF election on its website at www.sprott.com, including a PFIC Annual Information Statement.
- The identifying number (EIN) of the Sprott Physical Gold and Silver Trust is 98-1399794
- The identifying number (EIN) of the Sprott Physical Gold Trust is 98-0639185.
- The identifying number (EIN) of the Sprott Physical Silver Trust is 98-0678398.
- The identifying number (EIN) of the Sprott Physical Platinum and Palladium Trust is 98-6068232.
6. Can the Trusts be held in an Individual Retirement Account (IRA)?
Yes, the Trusts can be held in an IRA.
7. What if a U.S. taxable investor did not make a QEF election for the first year the investor held Trust units but wishes to do so now?
- A U.S. taxable investor who did not make a QEF election for the first year the investor held units may make a special election to treat the units as if they were sold for their fair market value on the last day of the year in which the investor wants to make the QEF election.
- Any gain realized on such deemed sale would be taxed at ordinary income rates and subject to an interest charge. The units will have a tax basis equal to their fair market value if gain is recognized as a result of the deemed sale election.
- Losses on such deemed sale are not recognized but rather are deferred until the units are ultimately sold.
- An investor who did not make a timely QEF election should consult their tax advisor regarding the deemed sale election.
8. What are the other consequences of the Trusts being PFICs?
- While investors in a PFIC are eligible for a lower tax rate on gains from the sale of their units than investors in a fund that is not a PFIC, an investor in a PFIC is required to report in each year’s U.S. federal income tax return their pro rata share of the Trust’s ordinary earnings and net capital gain, if any, for the Trusts taxable year that ends with or within the taxable year of the investor, assuming the investor has made a QEF election. This report is made by filing a Form 8621 with the investor’s annual income tax reports to report the ordinary income and capital gains from the Trust as described in Item 4.
- Historically, the Trusts have not produced any taxable income, so in the past U.S. taxable investors that made a QEF election did not have to report any pro rata share of ordinary earnings and net capital gain.
- The fiscal year end of each Trust is on December 31.
- Net losses of the Trust will not pass-through to a U.S. taxable investor who makes a QEF election but a loss can be recognized on the disposition of units.
9. Are there other elections that can be made?
- Yes, a U.S. taxable investor may make a mark-to-market election for their units rather than a QEF election.
- If the mark-to-market election is made, the U.S. taxable investor generally would include as ordinary income (maximum tax rate of 37% in 2021) in each taxable year the excess, if any, of the fair market value of the units at the end of the taxable year over such U.S. taxable investor’s adjusted tax basis in the units.
- The U.S. taxable investor would also be permitted an ordinary loss in respect of the excess, if any, of the U.S. taxable investor’s adjusted tax basis in the units over their fair market value at the end of the taxable year, but only to the extent of the net amount previously included in income as a result of the mark-to-market election.
- A U.S. taxable investor’s tax basis in their units would be adjusted to reflect any such income or loss amount. Any distributions by the Trusts would be subject to tax at ordinary income tax rates.
10. What are the consequences of making neither a QEF election nor a mark-to-market election to a U.S. taxable investor?
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.
11. Can a U.S. tax-exempt investor benefit from the Trusts’ PFIC status?
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.
12. Do the Trusts issue K-1s?
No, the Trusts do not issue K-1s.
13. Can you provide an example of QEF reporting?
- Assume that the investor acquires units in the Trust for $100 on January 1, 2021.
- For the taxable year ending December 31, 2021, the Trust reports no income to the investor. The investor files Form 8621 with their annual U.S. federal income tax return and makes the QEF election and reports $0 of income from the Trust.
- For the taxable year ending December 31, 2022, the Trust reports no income to the investor. The investor files Form 8621 with their annual U.S. federal income tax return and reports $0 of income from the Trust.
- On February 15, 2023, the investor sells their units in the Trust for $150. For the taxable year through February 15, 2023, the Trust reports no income to the investor.
- The investor recognizes $50 of long-term capital gain for their taxable year ending December 31, 2023 which is taxable at long-term capital gains rates (currently 20% for individuals). In addition, the investor files Form 8621 with their annual U.S. federal income tax return and reports $0 of income from the Trust.
|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.|
Tax Forms for U.S. Investors
- PFIC Form 2022
- IRS Form 8621
- Instructions for IRS Form 8621
- PFIC Form 2021
- PFIC Form 2020
- PFIC Form 2019
- PFIC Form 2018
- PFIC Form 2017
- PFIC Form 2016
- PFIC Form 2015
- PFIC Form 2014
- PFIC Form 2013
- PFIC Form 2012
- PFIC Form 2011
- PFIC Form 2010
Tax Forms for U.K Investors
Sign-up to have your annual PFIC statements delivered to you electronically.
†The Trusts are closed-end funds established under the laws of the Province of Ontario in Canada. PHYS, PSLV, CEF and SPPP are available to U.S. investors by way of listings on the NYSE Arca pursuant to the U.S. Securities Exchange Act of 1934. The Trusts are not registered as investment companies under the U.S. Investment Company Act of 1940.
††SESG is a U.S. registered exchange traded fund established pursuant to the U.S. Securities Act of 1933 and is listed on the NYSE Arca.
The Sprott Physical Silver Trust is generally exposed to multiple risks that have been both identified and described in the prospectus. Please refer to the prospectus for a description of these risks. This material must be preceded or accompanied by a prospectus. For an additional copy of the prospectus please visit https://sprott.com/investment-strategies/physical-bullion-trusts/silver/.
Precious metals investments are more volatile on a daily basis and have higher headline risk than other sectors as they tend to be more sensitive to economic data, political and regulatory events as well as underlying commodity prices. Precious metals investments have price fluctuations based on short-term dynamics partly driven by demand/supply and also by investment flows. Precious metals investments tend to react more sensitively to global events and economic data than other sectors.
Past performance is not an indication of future results. All data is in U.S. dollars unless otherwise noted. 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 tax, legal, accounting or professional advice. Readers should consult with their own accountants and/or lawyers for advice on their specific circumstances before taking any action. Sprott Asset Management LP is the investment manager to the Sprott Physical Silver Trust (the “Trust”). Important information about the Trust, including the investment objectives and strategies, applicable management fees, and expenses, is contained in the prospectus. Please read the prospectus carefully before investing. The indicated rates of return are the historical annual compounded total returns including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution or operational charges or income taxes payable by any unitholder that would have reduced returns. You will usually pay brokerage fees to your dealer if you purchase or sell units of the Trusts on the Toronto Stock Exchange (“TSX”) or the New York Stock Exchange (“NYSE”). If the units are purchased or sold on the TSX or the NYSE, investors may pay more than the current net asset value when buying units or shares of the Trusts and may receive less than the current net asset value when selling them. Investment funds are not guaranteed, their values change frequently and past performance may not be repeated. 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. Views expressed regarding a particular company, security, industry or market sector should not be considered an indication of trading intent of any investment funds managed by Sprott Asset Management LP. These views are not to be considered as investment advice nor should they be considered a recommendation to buy or sell.