NZ Sharesies Investment U.S. Tax, PFIC, and Reporting Rules

NZ Sharesies Investment U.S. Tax, PFIC, and Reporting Rules

NZ Sharesies Investment U.S. Tax, PFIC, and Reporting Rules

For U.S. taxpayers who are considered U.S. Persons for tax purposes and invest in foreign countries such as New Zealand and Australia, there are many twists and turns to be careful of to effectively manage any U.S. tax complications. When it comes to New Zealand, two of the main IRS tax issues that taxpayers have to contend with is if they are the owner or beneficiary of a New Zealand trust and if they have PIE investments — the latter of which may result in PFIC implications.  One platform that some taxpayers may use to invest in the New Zealand, Australian, and even U.S. markets is Sharesies. The platform is relatively simple, but there were a few tripwires that taxpayers who were considered U.S. persons must be cognizant of before making investments using this platform. Let’s look at some common issues to consider.

Foreign ETFs

Sharesies can be used to acquire exchange-traded funds (ETFs) outside of the U.S. The problem is that foreign ETFs are typically categorized as PFICs — Passive Foreign Investment Companies. While a domestic or US-based ETF will typically receive beneficial tax treatment so that it is subject to only a 15 or 20% tax rate, the same rules do not apply to foreign ETFs. Rather, foreign ETFs get taxed at the highest tax rate available in addition to having to pay interest and possibly penalties for the duration of the time that the fund is in existence and held by a U.S. Person. Therefore, taxpayers who are considering using shares should be mindful of the tax implications if they are investing in a foreign ETF.

PIE Funds

PIE funds are a form of retirement in New Zealand and even when it does not involve U.S. taxpayers, it can have complications depending on the tax rate and the type of investments made by the purchaser of the funds. Then, adding US taxpayer status into the mix will make it infinitely more complicated, because most of the investments are pooled funds — and are considered PFIC. Therefore, taxpayers who are considering investing in pie funds through shares or any other platform should first consider if there are any U.S. tax-compliant alternatives to try to avoid PFIC status.

Even Kids May Have FBAR or FATCA

For taxpayers who are U.S. persons and want to invest in foreign stocks and funds for their children, Sharesies is a great platform — but it is important to note that kids may have investment reporting requirements as well. Stated another way, even minors are required to report certain foreign accounts and assets on U.S. tax returns and FBAR, so before investing, Taxpayers who are U.S. persons and have children who are considered U.S. Persons should assess the specific type of investment and how it will be categorized under U.S. tax law.

Late Filing Penalties May Be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist Taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs. Prior Year Non-Compliance

Once a Taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, Taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for Taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

*This resource may help Taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.