PFICs

What’s a PFIC?

A Passive Foreign Investment Company (PFIC) is any foreign corporation that generates mainly passive income. Of course, like any provision in US tax law, the devil is in the details (and the definitions). Once an investment is defined/reported as a PFIC, it becomes subject to a particularly punitive tax regime in the US. The recordkeeping requirements are horrendous, and the bottom line is that the effective US tax rate starts at 39.6% and can be much worse depending on holding period and exchange rate movements.

Most US tax preparers will treat Australian managed funds, exchange traded funds (ETFs), listed investment companies (LICs), and Australian real estate investment trusts (A-REITs) as PFICs for US tax reporting.

So, if you want to try to get your head around the cost to a US taxpayer of owning Australian managed funds, here are a couple of resources:

 

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