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SMSFs warned on hidden estate tax

SMSFs warned on hidden estate tax

Miranda Brownlee
08 August 2017 — 1 minute read

SMSF practitioners have been cautioned that some of their high-net-worth clients could be subject to a “commonly overlooked” estate tax where they hold US investments.

Speaking at an industry seminar in Sydney, Moodys Gartner director Roy Berg explained that it’s not just US citizens that are subject to US estate tax.

Australian residents can also be subject to this estate tax, he said, where their total net worth exceeds the exemption threshold, which is currently US$5.49 million, and they hold certain US investments.


“With respect to investments in US stocks, for example, those are subject to US estate tax when somebody dies. That’s not just for a US citizen, but also for an Australian resident who has no US connections at all,” said Mr Berg.

“If they have say a half a $1-million position in Microsoft and they die, then that’s going to be subject to the US estate tax. Just exactly the same exposure as though they had a half a $1-million condo in Hawaii.”

Mr Berg said this would also apply to US shares held in a super fund.

While the US estate tax only applies where an individual’s total worldwide net wealth is above a certain threshold, which is US $5.49 million, when it does apply, it applies at 40 per cent of the asset value.

“So a $1-million position in Microsoft can be subject to an estate tax of $400,000,” he said.

Moodys Gartner director Marsha-laine Dungog said one of the reasons for this tax is because US and Australia estate and gift tax treaties haven’t been amended for a long time.

“A treaty was in place in 1953 for the estate tax, and the gift tax treaty was in place in 1954,” she said.

“The question then becomes can you use that tax treaty? Well you should be able to, but Australia doesn’t have an estate tax anymore. At the time that treaty was entered into, Australia did have an estate tax.”


SMSFs warned on hidden estate tax
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