Hi,
I am looking at purchasing a few properties in US and was investigating the best legal structure both in US and in AU. So far the investigation has shown that the best approach will be to set up discretionary trust in AU and LLC in US. From tax point of view LLC will be treated as disregarded entity which means that the trust will have to file a tax return in US declaring profits from all LLCs.
Can someone using similar structure comment on the taxation aspects in US, because from what I know the trust will be taxed at 30% which defeats the purpose of using trust to minimize tax here in Australia.
Hi Enchanted.
This is exactly how I am set up for my structure. ( I am not licensed to give advice but can talk of my experience)
If you don't bring any US property income home then my accountant has advised me that I didn't have to declare it as income on my latest tax return. It has simply been income generated by a US entity and has stayed in the US so the LLC would only pay US tax. But because the LLC is a pass through entity, then the owner of the LLC will pay the tax on the US side.
The moment you bring it home, then you will have to declare foreign income and pay tax according to your trust structure and distributions.
The rules pertaining to the taxation of the foreign trust are complex and you will need a good accountant on US side to assist you. I wish I could help further, and am happy to put you in touch with an accountant
Wouldn't this qualify as a controlled foreign company (CFC) and be included in your Australian assessible income even if you had not received any income.
I dont' know the answer as this is too complex, but look at http://www.ato.gov.au/businesses/content.aspx?doc=/content/64063.htm&pc=001/003/129/001/004&mnu=44866&mfp=001&st=&cy=
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
I was preparing the answer by Terryw beat me to this, basically the rule is that if you own controlling percentage in any foreign entity then any income is attributed to you and have to be declared in Australia regardless whether it has been distributed or not.
The legislation when it comes to taxation of single member LLCs is not overly complicated, in 2003 ATO has issued a ruling (Division 830) that clarified taxation treatment of US LLCs the ruling states that single member LLCs will be treated as partnerships and therefore all income attributed to members.
Let me reword the original question – for example my LLC in US has earned 10k in rental income, can someone describe how much tax will be paid in both US and Australia is this LLC is owned by a trust and trust makes distribution to a member who is in 0% tax category.
While not being an expert or trying to give any advice on setting up an LLC or whatever entity your using, the tax is just one part of setting the right structure up
And from the mouth of one of the U.S.A's top legal experts in this area, most people don't have a clue how their LLC is taxed and most LLC's are used badly.
"Our current tax code is a jumbled mess of arcane rules that defy common sense: even seasoned tax professionals will confess that neither they nor anyone else understands the tax code"
But probably the most important point, is the asset protection it gives ( or doesn't give), as most people tend to think that just having an LLC affords protections from claims made against it, when in fact, there are many so called 'Bad States' that if you have an LLC their, you are most likely open to losing your shirt even though you have an LLC.
Some states are very pro tenant, and can and will, go after your assets etc, through your LLC in that state, and other states make it very hard to do so and are more landlord friendly. But this part of having an LLC is really never discussed, so the way your LLC is set up, and where it's being set up, and how your LLC is being taxed for your own personal circumstances, is of prime importance.
You really need to seek out a true expert on this subject, don't just go by what everyone else is doing as everyone's own circumstances can be very different.
Best
Jeff
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