US-domiciled ETFs on Australian Stock Exchange - need to report on FBAR or Form 8938

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US-domiciled ETFs on Australian Stock Exchange - need to report on FBAR or Form 8938


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Old 9th August 2019, 08:24 AM
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Question US-domiciled ETFs on Australian Stock Exchange - need to report on FBAR or Form 8938

Hello,
I currently own Vanguard VTS and VEU ETFs, which are both US-domiciled ETFs purchased on the Australian Stock Exchange (ASX). From my understanding, this means that they are both effectively resident in the US and governed by US tax and legal system. More info here: Which ETFs are cross-listed and what does it mean? - ETF Watch

As I'm planning a move to the US next year (applying for a greencard now) I'd like to check that it's still OK for me to own these ETFs when I move to the US. From research on other websites, my understanding is that these ETFs are NOT considered PFICs (or would require an IRS private ruling to declare them PFICs). I'm planning to continue acquiring these 2 ETFs while I'm still resident in Australia, and likely after I move to the US too. I've checked with Computershare (Vanguard's share registry) and my broker, and they both don't have a problem with me being a foreign resident (outside Australia).

1. Is anyone aware of any reason I should NOT continue acquiring and owning these US-domiciled ETFs on the ASX when I move to the US?

2. When I become a US resident, am I correct in assuming that these US-domiciled ETFs do NOT need to be reported on FBAR and Form 8938?

Thanks again for your generous time and support!

P.S. I also own Vanguard VAS ETFs which are Australian-domiciled, and will be selling them before the end of this year (as I intend to move to the US in 2020).

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Old 9th August 2019, 09:16 AM
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1. Is anyone aware of any reason I should NOT continue acquiring and owning these US-domiciled ETFs on the ASX when I move to the US?
Assuming cross-listing doesn't change the nature of these ETFs' domicile, holding them should be okay when you become a US resident. It's non-US domiciled funds and ETFs that run into the US's horrible PFIC tax rules.

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2. When I become a US resident, am I correct in assuming that these US-domiciled ETFs do NOT need to be reported on FBAR and Form 8938?
Nope, sorry. Still reportable, with all of the US's trademark excessive penalties for noncompliance. From the IRS's form 8938 Q&A:
Quote:
If you have a financial account maintained by a foreign financial institution and the value of your specified foreign financial assets is greater than the reporting threshold that applies to you, you need to report the account on Form 8938. A foreign account is a specified foreign financial asset even if its contents include, in whole or in part, investment assets issued by a U.S. person. You do not need to separately report the assets of a financial account on Form 8938, whether or not the assets are issued by a U.S. person or non-U.S. person.
Same for FBAR. You might be able to remove these compliance hassles (and their threats of eye-watering penalties for a paperwork footfault) by reregistering your holdings to a US based broker once you arrive in the US.

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Old 9th August 2019, 09:36 AM
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To try to simplify things a bit, you may want to contact Vanguard as your move to the US approaches. In general terms, if the fund issues a 1099 form (report of income from the fund) you won't have to file any of the FATCA documents on the fund. Not sure if that would mean you have to transfer the investment to Vanguard's US entity or something, but it's well worth at least asking the question.

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Old 9th August 2019, 10:05 AM
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Originally Posted by JustLurking View Post
Assuming cross-listing doesn't change the nature of these ETFs' domicile, holding them should be okay when you become a US resident. It's non-US domiciled funds and ETFs that run into the US's horrible PFIC tax rules.


Nope, sorry. Still reportable, with all of the US's trademark excessive penalties for noncompliance. From the IRS's form 8938 Q&A:

Same for FBAR. You might be able to remove these compliance hassles (and their threats of eye-watering penalties for a paperwork footfault) by reregistering your holdings to a US based broker once you arrive in the US.
Thanks JL, darn thought I'd get around that, no such luck.

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To try to simplify things a bit, you may want to contact Vanguard as your move to the US approaches. In general terms, if the fund issues a 1099 form (report of income from the fund) you won't have to file any of the FATCA documents on the fund. Not sure if that would mean you have to transfer the investment to Vanguard's US entity or something, but it's well worth at least asking the question.
Thanks for the advice. Just checked my records and looks like I've received a form 1042-S "Foreign Person's US Source Income Subject to Withholding" but that's the only form I've received for my VTS/VEU ETFs. I haven't received an 1099 that I'm aware of. Oh well, I'll have to submit the 8938 and FBAR forms for other foreign investments/accounts that I have anyway, so just have to add these ETFs to the list... and hope I don't make a costly mistake.

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Old 9th August 2019, 10:43 AM
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Not sure how this would work, but you might find that once you move (and assuming you update your address details, provide an SSN etc), that you start getting a 1099. Definitely worth asking them the question.

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Old 9th August 2019, 10:43 AM
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Originally Posted by Pareto8020 View Post
Thanks for the advice. Just checked my records and looks like I've received a form 1042-S "Foreign Person's US Source Income Subject to Withholding" but that's the only form I've received for my VTS/VEU ETFs. I haven't received an 1099 that I'm aware of. Oh well, I'll have to submit the 8938 and FBAR forms for other foreign investments/accounts that I have anyway, so just have to add these ETFs to the list... and hope I don't make a costly mistake.
Ah, but when you move to the US, you'll no longer be a "Foreign Person" but a full fledged US taxpayer. The withholding should be a bit less and at that point you'll get a proper 1099 each year for tax purposes. So, onward and upward! <g>

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Old 9th August 2019, 03:13 PM
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Pareto8020 -- The reporting requirements are for "financial accounts," not individual stocks/etfs, so as you've already learned, you'd still need to report. My recommendation would be to close-out your positions with your Australian broker and repurchase with a US broker -- that way you'll get the appropriate 1099 and not have to worry about trying to get out of the 30% withholding tax generated by receiving your 1042-S. When in the U.S., you'll use form 8949 and Schedule D to report individual stock/ETF transactions. Cheers, 255

P.S. Vanguard does have its own brokerage firm and they charge zero commissions for online trades in Vanguard ETFs. They are not as competitive commission-wise for stocks and options; but they are fine for "buy and hold" investors. Additionally, they don't charge for DRIP (Dividend Re-investment Program) transactions.
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Old 9th August 2019, 10:50 PM
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Not sure how this would work, but you might find that once you move (and assuming you update your address details, provide an SSN etc), that you start getting a 1099. Definitely worth asking them the question.
Filing a W-9 with the broker is what triggers the switch from 1042-S to 1099. It overrides any prior W-8BEN filed with the broker.

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... the 30% withholding tax generated by receiving your 1042-S.
The treaty rate for Aus residents is 15% on dividends. Hopefully the OP's 1042-S forms show that withholding rate. (If not, file a 1040-NR to claim back the overwithholding from the IRS.)
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Old 28th November 2019, 07:56 PM
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Hi Pareto,

I realise this is an old thread, but im in a similar situation. Wondering if you could provide an update? How did it all go?

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Old 29th November 2019, 12:18 AM
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Hi Lindenmp, I'm still in Aust but plan to move mid-2020, so my plan (based on info above) is to sell all of my VAS before end of this year (next month sometime), and then just before moving to the US, sell all of my VEU and VTS and then re-acquire them again when in the US. I may continue to acquire VEU/VTS while I'm in Australia during the start of next year, though my plan to sell them just before leaving means that I'll own them for < 1 year, so no 50% CGT discount (that's ok - I have a large-ish capital loss carried forward to offset against). My primary aim is to keep things simple and I think that's probably the simplest and lowest hassle/risk way to do it.

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