US Taxes on PFICs
I feel like typing today instead of writing. I type faster than I write, so let’s go.
So our US Tax Accountant mentioned that we may be subject to PFICs this year. I’ve countered them by saying that there’s no change in my investment strategy, and that they’ve been filing our US Taxes for the past 3 years, and told them to proceed with whatever process they’ve done previously. They mentioned that this is the first time it showed up in AU tax reports. I didn’t respond to that as I know doing so would proceed us in going down a rabbit hole where there’s no end. In short, our AU tax filing is simple. All transactions are submitted to the ATO and our tax forms are all pre-filled based on my TFN and HIN. Yes, I do calculate my gross income by deducting the total commissions for the fiscal year, and that’s about it. I also include the Covid working rate (for Kathy as she works from home). Since source documents aren’t required for us to file our AU taxes, it’s simple and straight forward.
Regarding our US Taxes, PFICs are adding complication. Not only is our US Accountant saying that each PFIC form costs $75 USD, they require source documents. I believe it’s used to calculate CG. We’ve mentioned we don’t have source documents and that everything is pre-filled to the ATO (including providing them with the ATO website). Since we’ve told them not to proceed with the PFIC reporting as we won’t be paying those fees or to add tax implications, it’s up to them how they wanted to proceed, and they decided to calculate using ordinary dividends. Pretty sure that’s not the way PFICs are handled as it requires for the total # of shares to be reported (or MTM) as well as the CG calculation, and so forth. We’ve also paid them for audit fees starting last year (and this year), so the responsibility is on them. If they deem for us to be higher risk, they should just refund us back our initial deposit and we’ll find another US Accountant. There’s also the possibility that they help us file for this year, but not help us file for next year. I don’t mind either way.
Regarding my approach for this year due to potential PFICs, I’ve liquidated most of our non-core ETFs allocated < 5%, in both EFI and KFI-BInvT. I plan to keep the core 4 ETFs, increasing their % allocation instead. Core ETFs will remain allocated to 60% in EFI, and 50% in both KFI-BInvT and EKSuper. Since we no longer need to report our holdings within our Super accounts, only EFI and KFI-BInvT would be subjected to PFICs. We still don’t have source documents, but our ETFs will be reduced to about 4 each, so total 8. Any PFICs taxes owed should be offset with our FTC (Foreign Tax Credits). What we’re not sure is how CG would be calculated since all transactions are reported to the ATO. Unless they consider my investment report as their source document, otherwise, there would be no other way for our US Accountant to report.
