The Foreign Account Tax Compliance Act (FATCA) is legislation enacted by the US government to ensure that its citizens and tax residents comply with US tax laws.
Australia and the US have signed an agreement to implement FATCA. In order to ensure that both countries’ tax laws are effectively enforced, Australian Financial Institutions are required to report US citizens’ or US tax residents’ revenue and income to the Australian Taxation Office. The aim of this legislation is to faciliate tax information sharing between the two countries. For more information on FATCA, please click on the button below:
This has a potential negative effect on SMSFs by increasing the compliance burden. However, the federal government has announced that it has entered into an agreement with the US that excludes SMSFs from the need to comply with FATCA. This means that SMSFs are exempt from the FATCA requirements. For more information, please see here.
Trustees should still be mindful of residency requirements that is relevant to Super Funds. This means all SMSFs must be regarded as residents in Australia to enjoy the concessional tax rate of 15%. For more information please refer to our residency page.
FAQ's for FATCA relevant to SMSF's
FATCA classification for SMSF's
SMSF’s are classified as Non-Financial Foreign Entity (NFFE) for most SMSFs. The reason for this treatment is that:
- an SMSF is not carrying on a financial services business
- an SMSF is a private retirement entity for the benefit of its Members
- an SMSF is not an investment entity to the public and each Member must be a Trustee of the Fund.
What may cause confusion around Foreign Financial Institution
Large Retail or Industry superannuation funds which are run by professional trustees and regulated by APRA are run for the benefit of the public and therefore classified as Investment Entities or therefore Deemed-Compliant Foreign Financial Institution (FFI).
This is in sharp contract to SMSFs with a maximum of 6 Members where the Members act as Managers \ Trustees of the SMSF as well.
Expectations of most banks and brokers
When an SMSF open up accounts with:
- brokerage accounts,
- term deposits,
- bank accounts,
- US share trading platforms,
and there is a reference to FATCA, the SMSF should be classified as a Passive NFFE (Passive Non-Financial Foreign Entity).
The main reason is that the controlling persons (Trustees/Members) are disclosed and the Fund is run for the benefit of its own Members.
Does it make a difference is an SMSF has a Corporate Trustee
The FATCA status should still be based on the SMSF itself, not whether the SMSF use:
- individual trustees, or
- a corporate trustee.
Remember for a Corporate Trustee, all Members of the SMSF must be Directors of the Corporate Trustee. So the SMSF is still run by the Members for the benefit of the Members.
Next Steps
If there’s questions from your bank or broker on the SMSF FATCA status, we can issue an accountant letter to confirm the status or certify a copy of the SMSF Truste Deed that will show the SMSF Members and Trustees. Or even run an Associates report from the ATO showing who the Members and Trustees are.