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Topic: Australian Unit Trusts and US Federal taxes Facts:

Customer Question

Topic: Australian Unit Trusts and US Federal taxes
Facts:
1) I am a US Citizen, residing in Hong Kong (but of course, considered a US tax resident so I file a 1040 and am taxed as though I live in the US)
2) I have invested in an Australian Unit Trust which will make investments in Private Equity and Hedge funds. The PE and Hedge Funds use the typical Cayman Island structures
3) 75%+ of the income and gains from the PE and Hedge Funds will be derived from non-Australian (and non-US) investments.
4) the nature of the income to the Unit Trust will be primarily interest income, ST and LT capital gains, possibly dividend income.

Questions
1) how will distributions from the Aussie Unit Trust be taxed by the US?
2) would I have more favourable tax treatment if I invested in the PE & Hedge Fund via a Delaware LP, as I do for 99% of my other PE investments?

Summary - how much of a tax disadvantage is investing via the Aussie Trust vs a Delaware LP?
Submitted: 11 months ago.
Category: Tax
Expert:  USTaxAdvising replied 11 months ago.

Hello,

Thank you for using justanswer. I can assist you with your questions today.

 

Before we can determine how the distributions will be taxed we need to determine how the U.S. is going to classify the trust (i.e. what is the entity's classification like corporation, foreign trust, partnership, etc.) This will drive how the unit trust will be taxed.

 

Can you give me the name of the prospective Unit Trust investment you are looking into?

 

The main thing I need to determine is whether or not the Unit Trust will be deemed a PFIC.http://en.wikipedia.org/wiki/Passive_foreign_investment_company

 

Customer: replied 11 months ago.


hmmm - the Australian Unit Trust is a private investment trust so knowing the name won't help. Let me look at the wiki and get back to you.

Expert:  USTaxAdvising replied 11 months ago.

Hi Scott,

 

Some investment trusts may have "U.S. tax considerations" in their prospectus or offering memoranda - if you have access to something like that it would be an excellent starting point.

 

best,

Customer: replied 11 months ago.


The Aussie Unit trust is a small private trust and does not have the broad multi-country tax disclosures you would be thinking of for a retail investment offering. I think maybe we need someone who has experience with Australian Unit Trusts and US tax law?

Expert:  USTaxAdvising replied 11 months ago.

Yes, we need to know how the entity will be classified. I am 80% sure it will be "corporate" classification but it is not a desirable result for you so we need to be sure.

 

I will continue to research and see if I can find something. If you can give me the weekend I should be able to confirm the classification by then.

 

Let me know.

 

Best,

Customer: replied 11 months ago.


Hi,


Seems that you may not be able to provide much help on this question as it really requires someone with an understanding of both Australian Unit Trusts and the IRS.


 


If you don't think you can sort this out, please release my deposit.


 


Thanks,


 


Scott

Expert:  Lindie-Moderator replied 11 months ago.

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