SMSF Investing in the US - LLC or C Corp

Hi Guys, so much literature exists on this topic with clear conflicting answers... I have a Corporate Trustee ATF an Australian SMSF. I want to invest in some property in the US but not directly for asset protection reasons amongst other.

The clear choices are: 1. LLC with Corporate Trustee ATF SMSF as the sole member OR 2. C Corp with Corporate Trustee ATF SMSF owning 100% of the shares. The issues as I understand it are:

C Corp - subject to double taxation as taxed US income can only be returned to Australia as a Dividend and then you will pay Dividend Withholding Tax and can't take up foreign tax credit.

LLC - no issue with double taxation as income passed straight through to Australian entity however there can be issues with contravening the SIS Act by using an LLC as there isn't a similar concept in Australia. Is this true?

Very keen to hear your wisdom on the topic.

Regards - chuckyp.

Would those companies be related parties? If so then your SMSF would be prohibited from acquiring the shares. There is an exemption if it wouldn't result in exceeding more than 5% of the funds total assets.

Regards

Terryw

Hi Terry, don't understand the question?  The company/LLC would simply be used as a vehicle with which to acquire the properties on behalf of the SMSF for asset protection. The SMSF would be the only member/own all the shares in the company.

Regards - chuckyp

The company or LLC would then have to be acting as bare trustee for the SMSF. SMSF couldn't own the shares in a standard company acting in its own right could it would breach the rule against investing in a related party.

It would be complex acting as bare trustee too because of the different laws regarding trusts in Australia and the USA. You would need to see a specialist SMSF advisor.

Where is superman ?

Regards

Terryw

Hi,

I just got back from the USA where, on advice I set up a C corp and bank account in the name of our Pty Ltd company trustee of our SMSF. Money to purchase property is already in the US bank account. I just found out about double taxation of a C corp. My research never showed this up and nobody told me about it before I acted so as you can imagine I am a little upset. I have a house I want to buy right away but it looks like I need to change my corporate structure.

My accountant in the States is saying that I can elect to change the C-corp to an S-corp which does not attract the double taxation and apparently is more similar to a Pty Ltd company than an LLC.

Have you been able to resolve this issue yet. If so how have yoiu done it? Any information you can share would be very gratefully received.

Hi,

Disclaimer: I'm not an accountant or a lawyer so don't sue me for telling you what I would do :)

Yes I resolved this after sifting through heaps of cr@p online and speaking to many people each with different opinions (many wrong or adding complexity for no reason).

You need an LLC incorporated in the state which you are buying the property. It acts as a pass through entity and any tax you pay in the US can be claimed as a foreign tax credit here in Australia. There is a way to do it with a C-Corp or S-Corp but you are adding complexity for no reason and it sounds dangerous to me. Just dissolve the C-Corp (I had to do the same with an LLC I created incorrectly at first) and form an LLC in the State you want to buy. Many states you can do this online and it's quick.

The unfortunate side of this is you will have to go back to the US then to get the bank account for the LLC... I found BoA the easiest to deal with.

-chuckyp

If I purchase property in the  USA using my retirement fund ....and I am over 65 yrs ..will I still be able to claim the tax free benefits of the income as I would when investing in Australia.

In Australia your income from a SMSF would be tax exempt once you have reached retirement age. But the laws of USA are different and your entity over there would be, probably, taxed.

Regards

Terryw

Income from Superannuation is only Tax exempt once you are in "retirement phase" irrespective of your age (subject to being over 55).

You can be 70 and still working and the income earned in your SMSF will still be Taxed at 15%.
 
The fact of being in "Retirement phase" is the important definition.

Cheers

Yours in Finance

Richard Taylor - richard@tayloredfinancialsolutions.com.au Tel: 07 3720 1888
Residential Mortgage Broker providing structured home loan advice for investors and owner occupiers all over Australia.
Want to live of your rental income? 0-40 properties in a decade. Email me for a copy of my API Magazine interview

I spoke to James at US Tax Central basically what you are stating is correct, the SMSF is the member of the LLC.

I don't understand why  you need to go back to US to set up the bank account?

Cheers, WI