Tax Strategies for Australians

[justsomeguy]

I'm in the process of figuring out how to best structure things and optimise for things as an Australian Citizen. I know the most straight forward thing everyone is going to say is to simply leave but due to family and other commitments i wont be able to do that, even though id want to.

My situation is i run a online business, currently are running through a US LLC which allows me to pay zero tax in the US and i just pay tax in Australia on the salary i pay myself. Looking to potentially sell the business in 1-2 years. Ideally id want to have that money from selling the business invested in a zero tax location and just pay myself a salary from the portfolio every year, which ill pay tax on in Australia. This is however extremely complicated and Australian tax law is a headache.

Wondering if anyone has any advice or can point me in the right direction. Any help is appreciated. Thanks.

 

[Martin Everson]

The US LLC place of operation and control would be in Australia where you are based. Consequently this is where the LLC will be liable for tax subject to any advantages given in Double Taxation Agreement between US and Australia.

Unless you are willing to run everything at complete arms length which is costly and also presents a different risk you may be better off just paying the tax for now if your unable to move. You can also speak to a tax advisor to see how you can minimize your effective tax rate you pay in Oz. That means working out what you can legally deduct to reduce your tax bill.

 

[justsomeguy]

The US LLC place of operation and control would be in Australia where you are based. Consequently this is where the LLC will be liable for tax subject to any advantages given in Double Taxation Agreement between US and Australia.

Unless you are willing to run everything at complete arms length which is costly and also presents a different risk you may be better off just paying the tax for now if your unable to move. You can also speak to a tax advisor to see how you can minimize your effective tax rate you pay in Oz. That means working out what you can legally deduct to reduce your tax bill.

Could i not just setup a offshore company in a 0% tax location to be the owner of the US LLC. Run things as is, pay myself a small salary. Then before selling the business setup another offshore company in a 0% tax location, transfer the proceeds of the sale into that company as a capital investment into the new company, invest it then pay myself from there. This would trigger CFC rules on the new company setup due to passive income but as far as i understand that means the offshore company will be taxed as an Australian company which is currently 25%, then i can deduct that 25% from whatever i pay on top. Does anyone with a better understanding than me know if this would work or not?

 

[Martin Everson]

Could i not just setup a offshore company in a 0% tax location to be the owner of the US LLC. Run things as is, pay myself a small salary.

You can do. But in the zero tax location the company would need to fulfill substance requirements. Shell companies are mostly dead. Plus you will remain the UBO and whole structure would fall under BEPS Action 5 as a clear profit shifting structure that serves no purpose but to avoid tax.

Base erosion and profit shifting | Australian Taxation Office

How the OECD and Australia address base erosion and profit shifting, a tax avoidance strategy used by multinationals.

www.ato.gov.au

Also ATO will be waiting for you as some of those tax free countries you plan on using will report your entity to them directly if you do not meet their now often costly substance requirements. I discussed this below:

Twelve no/low tax countries share data on companies with no substance with UBO's country

Since March 2021 twelve countries now automatically share information on companies with no economic substance and where beneficial owners are non-resident. I think non-resident folk with companies in the below countries may be in for a letter from their tax man. Anguilla Bahamas Bahrain...

www.offshorecorptalk.com

Does anyone with a better understanding than me know if this would work or not?

If your not getting what you want to hear then sure someone else here can give you a second or different opinion from mine . But welcome to 2022 we are no longer in 2002 offshore world.

 

[justsomeguy]

@Martin Everson appreciate all the info. There is definitely alot i dont understand yet. Just trying to eventually figure out the best possible way forward out of all the options.

 

[FixieHartmann]

@justsomeguy I am also thinking about running a US LLC from Australia. Did you run into any problems with doing that? Did you talk this through with your tax consultant and did you get some questions from the ATO about it?

I understand that the LLC would tax transparent in the US and in Australia all income / expenses would be counted as if they happened to you as sole trader, right? So if for instance the LLC makes 100k revenue and has costs of 20k, then you'd pay normal sole trader income tax in Australia on the 80k, correct?

So from a tax perspective it is the same as just being a sole trader, however with restricted liability. What about PSI / PSB?

 

[justsomeguy]

@justsomeguy I am also thinking about running a US LLC from Australia. Did you run into any problems with doing that? Did you talk this through with your tax consultant and did you get some questions from the ATO about it?

I understand that the LLC would tax transparent in the US and in Australia all income / expenses would be counted as if they happened to you as sole trader, right? So if for instance the LLC makes 100k revenue and has costs of 20k, then you'd pay normal sole trader income tax in Australia on the 80k, correct?

So from a tax perspective it is the same as just being a sole trader, however with restricted liability. What about PSI / PSB?

Okay so. For my situation the US LLC works well, have no real issues setting things up or runnings things or dealing with the IRS and filling taxes of $0. Australia considers the US LLC if a single member LLC a passthrough entity, and for tax purposes a partnership in Australia.

As you saw from above im still trying to figure out a better solution for this, the current setup is fine but im sure there is a more optimal structure.

 

[FixieHartmann]

Okay so. For my situation the US LLC works well, have no real issues setting things up or runnings things or dealing with the IRS and filling taxes of $0. Australia considers the US LLC if a single member LLC a passthrough entity, and for tax purposes a partnership in Australia.

As you saw from above im still trying to figure out a better solution for this, the current setup is fine but im sure there is a more optimal structure.

Awesome, thanks so much for the answer. Is your LLC income considered PSI by the ATO?

 

[justsomeguy]

Awesome, thanks so much for the answer. Is your LLC income considered PSI by the ATO?

Good question, i am really not sure. I would probably guess and say no, because its not an Australian entity with a ABN/ACN.

 

[oznomad]

PSI classification depends on the type of business activity, trading activities like online business are generally not considered PSI. Corporate tax residency and CFC rules make offshore structures pretty useless for Australian tax residents.

 

[getmeout]

PSI classification depends on the type of business activity, trading activities like online business are generally not considered PSI. Corporate tax residency and CFC rules make offshore structures pretty useless for Australian tax residents.

I know it's an old thread, but does anyone have any more info on this in regards to asset protection? For example:

Offshore company, Nevis or cook islands trust, UBO is an Australian so you report and pay everything required to Australia...but the assets are untouchable since they're physically separated from the country and legal ownership (UBO) is a family member.

As far as I can tell this would offer far superior protection to an Australian trust which is pretty worthless on paper and can be broken by "intent" which fair enough is used by a number of bad actors but also leaves the door open to a court having their own bias and deciding for personal reasons they want to pierce the trust. The above setup done via local means has been pierced before under the guise that a family member being the UBO = the money is yours

Referring mainly to family court here. For those that don't know, there are vague provisions in the law where your friend with benefits can in theory convince a court they are entitled to half your assets. Unlikely to a rational court but why take that risk?

From everything I've read it sounds like the lawyers/court would have to go overseas to argue their biased point (since nothing illegal has been done) in front of an overseas court which would not be sympathetic. Because the money was legally earned, is not owned by me, was earned before entering a relationship + Australia's laws where a friends with benefits can be considered a wife is an absolute joke.

No problems with tax office because everything's declared, the source of the money is legit ect..