When will an Australian Trust be a Grantor Trust Under the Internal Revenue Code of 1986 (Code)?

Author: Peter Harper

In many countries outside of the U.S. discretionary forms of trusts are used as both business planning and estate planning tools because they facilitate flow through tax treatment of income they derive.

To the extent that a trust settled in Australia:

  1. is funded by a person who is a U.S. resident taxpayer or who becomes a U.S. resident taxpayer at a later date; or
  2. is controlled by a person who is U.S. resident taxpayer (through the trustee or via the role of the appointor) or by a person becomes a U.S. resident taxpayer at a later date,

it is likely that the trust will be a grantor trust.

Australian trusts that allow trustees to distribute income on a discretionary basis that have U.S. grantors will, under the grantor trust rules contained in Code sections 671-679 be ignored, and income will be attributed to such U.S. resident taxpayers (citizens, green card holders, and substantial presence test aliens).

Failure to properly attribute the income derived by the trustee of the Australian trust to the person known as the grantor, and report it on form 3520-A or 3520, can result in substantial financial penalties.

If you have any question regarding treatment of your Australian Trust in the U.S., please contact one of our specialists today.

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Disclaimer:
This document is intended as an information source only. The comments and references to legislation and other sources in this publication do not constitute legal advice and should not be relied upon as such. You should seek advice from a professional adviser regarding the application of any of the comments in this document to your fact scenario. Information in this publication does not take into account any person’s personal objectives, needs or financial situations. Accordingly, you should consider the appropriateness of any information, having regard to your own objectives, financial situation and needs and seek professional advice before acting on it. CST Tax Advisors exclude all liability (including liability for negligence) in relation to your reliance in this publication.

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