We often find that expats-to-be can sometimes have complex tax minimisation structures in place to allow them to spread their income to other family members to reduce their overall tax liability.
This may include but is not limited to holding investments such as shares, investment property or managed funds in a family trust or sometimes a company.
Whilst these sorts of structures are a great way to spread your income whilst you’re a permanent tax resident, once you depart over to the US this creates a bit of a tax headache for yourself.
Remember the classification of what a PFIC is? We have seen cases where the IRS has classified an Australian family trust as a PFIC, the reason being that it held an investment property and some blue-chip shares.
These investments all pay passive income and 100% of the assets held in the trust produce passive income. It created a situation where suddenly the family were liable to pay a large amount of tax due to its classification as a PFIC.
Further on trusts when you are expatriating, the central management and control must remain in Australia. This means that at least 50% of the beneficial interests in income, property or assets must be from Australia residents.
This can also correlate to the structure of a Self-Managed Super fund, and there are several ways to get around this but it does involve some complex advice and for that reason we won’t go into it.