If an SMSF is investing in US property, an LLC (Limited Liability Company) needs to be set up to facilitate the investment.
When registering an LLC with the Internal Revenue Service, Trustees need to ensure that the SMSF holds a 100% interest in the LLC. A Register of Memberswill be issued and this should note the SMSF as the legal owner of the LLC. A sample Register of Members can be viewed by clicking on the button below:
As per our understanding, if the LLC has the SMSF as its only Member, the Internal Revenue Service in the US will automatically treat it as an entity disregarded from its owner (a disregarded entity) unless the LLC lodges a form 8832 and elects to be treated as a Corporation. If an LLC is treated as a disregarded entity, the assets within the LLC structure will be regarded as in-house assets and the total value of the asset cannot exceed 5% of the total asset value in the SMSF. Trustees therefore need to ensure that the LLC is set up as a Corporation, which will then be regarded by the ATO as a Section 13.22C unit trust.
To obtain a copy of the form 8832, please click on the button below:
In order for the SMSF to be compliant, the US bank account needs to be held with an Approved Deposit Taking Institution (ADI). Otherwise, the SMSF may be in breach of the in-house asset test. A list of ADIs is included here for your reference:
For a typical structure needed for USA property investment, please see here.