Trusts and international shares

Discussion in 'Accounting & Tax' started by goponcho, 12th Jan, 2021.

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  1. goponcho

    goponcho Active Member

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    Have heard it can get tricky buying international shares via a trust.
    Anyone know much more about this or have any resources to read further?

    Have recently formed a trust but wanted to delve into some other markets too, but unsure of the implications.

    Cheers!
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    A trust is a relationship not an entity. They are not recognised in most countries - other than those with English derived legal systems.

    The trustee would buy the shares as per normal and they would be taxed in Australia as a trust, but overseas the trustee may be directly taxed.
     
  3. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Especially the USA. The US doesnt recognise our trusts or smsf system. They also see trusts as a different type of relationship to our tax laws. (ie more an offensive issue)
    Here we may see the legal owner as XYZ Pty Ltd (as trustee for the CCC Trust). ATO expects CCC Trust to lodge a trust return and distribute to beneficiaries who are taxed.

    A foreign country may see XYZ Pty Ltd as the taxable entity. They may apply taxes in ways not considered eg uniform company tax rates on every dollar of income. This may or may not be creditable here. The foreign shares may also not have franking credits and have large amounts of foreign withholding deducted (which may or may not be creditable)

    Then there is the foreign exchange issue so a small US share profit is actually a loss if the exchange rate impacts it etc.

    It may also be wise to consider domestic purchase of foreign equities through other means. eg A listed AU ETF that holds US share inteersts for example. A platinum managed fund etc. These are usually AUD demininated buy can include foreign interests without the hassles and record keeping difficulties and direct trade costs.
     
  4. goponcho

    goponcho Active Member

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    Wow okay thank you guys - was not aware of any of that - makes it prohibitively tricky for a individual trustee (or corp trustee) to invest overseas.

    What other tax efficient options do you think is useful for overseas equity investing, when aiming for long term capital gains as primary form of return along with dividends, and across a few different markets (USA, Japan, China, Asia)?

    In individual name we would pay withholding tax overseas, but be eligible for CGT discount as taxed within Australia? And no franking credits?
    And as separate investment company, no CGT discount but can hold the money in the company and defer tax beyond the 30% tax rate?

    I am guessing things vary by jurisdiction, and looks like individual name would be simplest.

    Thanks again - really useful!
     
    Last edited: 18th Jan, 2021
  5. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Why ? The USA doesnt seek to tax a resident Australian trust or smsf. Thats the key. An Australian resident tax entity can seek protection of the double tax treaty. It will only pay Australian tax on foreign (treaty partner) investments. And any foreign withholding can be credited in Australia.

    The USA has no franking credit system. Its a system that is used by only a few nations incl Australia. The USA solely relies on non-resident tax withholding which can be claimed here on that same income. The USA requires all investors to declare their residency and it supports cross border reporting so IRS share the data with the ATO. Some countries are even harder eg Switzerland. They withhold TWICE at source (One is Swiss anticiptory tax and other is formal withholding) and have a complex paper mechanism for some of that tax to be refunded and then the balance is credited against the AU return. Its one of the few taxes I know you can make a (assessable) profit on.
     
  6. goponcho

    goponcho Active Member

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    Not quite sure what you mean - are you saying it is relatively straightforward for a trustee to be taxed on USA equities - as they are not taxed within USA except for withholding tax? So even as a trustee buying USA equities, would be recognised as a trustee, or just an individual?


    On an aside for anyone interested I have done a bit of reading for an individual Aus resident purchasing equities in USA:
    - taxed in Australia on dividends, adjusted for credit for 15% withholding in USA if W-8BEN form filled in. No franking credits passed through.
    - taxed in Australia on CGT, with purchase price/sale price converted at the time of transaction. Preservation of CGT discount after 12mo. No taxation of CGT within USA.
    Also have seen that many counties have tax treaties, and going rate is generally 15% for withholding, but tax complexities arise depending on the individual country.

    Still trying to elucidate the implications as a trustee however.