Help opening an Interactive Brokers account with a Corporate Trustee

Hi Guys,

I'm going through the online application to setup an Interactive Brokers account so I can invest in international equities but are hitting a few hurdles!

I have trust with corporate trustee already in place but I'm confused with some of the questions in the IB application process because they don't seem like they apply to Australian trusts.

I'd greatly appreciate the advice of how to answer the following questions:

Question 1) Under the 'add beneficiaries' section, the wizard asks for individual and entity beneficiaries (which is fine) but it also asks for % ownership next to each and these must add up to 100%. This doesn't make sense to me because I have a discretionary (family) trust and beneficiaries don't own anything - the trust itself is the owner of assets, not the beneficiaries. My question is what do I fill out here?


Question 2) There is a section earlier in the wizard which asks to add "all settlors, grantors, and any other individuals or entities with the power to revoke the Trust." Also concerning is that I must add % ownership - again, I do not feel this is a relevant question for Australian discretionary trusts. Has anyone filled this out before and what did they select for % ownership?

Question 3) There is also a question saying "Classification of Trust for US Tax Purposes
Foreign Account Tax Compliance Act - FATCA" and "Please identify the manner in which the trust is treated for US income tax purposes?
Complex Trust (most common)
Grantor Trust
Simple Trust

Again - this seems like a US Trust application question - my trust is an Australian discretionary trust so what would I select?

I spoke to someone on IB online chat and the person assured me I was filling out an Australian IB Trust account and not a US Trust account. Has anyone else in Australia successfully gone through this wizard with a corporate trustee? Would appreciate your advice!

Yes, i am also working my way through this....i'm also stuck....even though my wife and i are trustees it says we cannot be beneficiaries....well who else would be!!!????

A trust is not an entity, it is a trust. A company is an entity and a person is an entity. Only an entity can buy and sell assets. The trust itself can't even hold a bank account let alone assets, hence why you have to call it a stupid long winded name and the trustee actually owns the bank account. assets are held in trust by the trustee and managed by the trustee under the terms of the trust deed for the benefit of the beneficiaries.

Canoz, to use IB properly you should have a corporate trustee. So you would be company director, in charge of a company, which is the trustee to your trust, appointed by the appointer( also you) and run to benefit the beneficiaries ( your family ). The Company itself should also be a beneficiary for tax reasons but you'd have to read your trust deed to make sure your allowed, most of the time trustees are specifically written in or out as beneficiaries.

Having you and your wife as trustees means you can't trade IB Margin account ( unless somethings changed in the last 3 years). You need to be a corporate trust, ie a company as trustee. You also have to ask yourself why you have a trust if you are appointer, trustee and beneficiary. You lose all your protection you gain from a trust, which is probably why IB/ASIC don't allow margin.

In regards to the % ownership, i just filled it out with the named beneficiaries and added the numbers up to 100%. These numbers probably make more sense to other structures, joint accounts, unit trusts etc. They don't make any sense to a purely discretionary trust and technically as trustee you can make the numbers up as you go along, which is exactly what i did.

keffo said:

Hi Guys,

I'm going through the online application to setup an Interactive Brokers account so I can invest in international equities but are hitting a few hurdles!

I have trust with corporate trustee already in place but I'm confused with some of the questions in the IB application process because they don't seem like they apply to Australian trusts.

I'd greatly appreciate the advice of how to answer the following questions:

Question 1) Under the 'add beneficiaries' section, the wizard asks for individual and entity beneficiaries (which is fine) but it also asks for % ownership next to each and these must add up to 100%. This doesn't make sense to me because I have a discretionary (family) trust and beneficiaries don't own anything - the trust itself is the owner of assets, not the beneficiaries. My question is what do I fill out here?
View attachment 69744

Question 2) There is a section earlier in the wizard which asks to add "all settlors, grantors, and any other individuals or entities with the power to revoke the Trust." Also concerning is that I must add % ownership - again, I do not feel this is a relevant question for Australian discretionary trusts. Has anyone filled this out before and what did they select for % ownership?

Question 3) There is also a question saying "Classification of Trust for US Tax Purposes
Foreign Account Tax Compliance Act - FATCA" and "Please identify the manner in which the trust is treated for US income tax purposes?
Complex Trust (most common)
Grantor Trust
Simple Trust

Again - this seems like a US Trust application question - my trust is an Australian discretionary trust so what would I select?

I spoke to someone on IB online chat and the person assured me I was filling out an Australian IB Trust account and not a US Trust account. Has anyone else in Australia successfully gone through this wizard with a corporate trustee? Would appreciate your advice!

Click to expand...

SO is this a SMSF or outside? IF SMSF , my exp with IB is can't open a Margin A/c

DaveDaGr8 said:

A trust is not an entity, it is a trust. A company is an entity and a person is an entity. Only an entity can buy and sell assets. The trust itself can't even hold a bank account let alone assets, hence why you have to call it a stupid long winded name and the trustee actually owns the bank account. assets are held in trust by the trustee and managed by the trustee under the terms of the trust deed for the benefit of the beneficiaries.

Canoz, to use IB properly you should have a corporate trustee. So you would be company director, in charge of a company, which is the trustee to your trust, appointed by the appointer( also you) and run to benefit the beneficiaries ( your family ). The Company itself should also be a beneficiary for tax reasons but you'd have to read your trust deed to make sure your allowed, most of the time trustees are specifically written in or out as beneficiaries.

Having you and your wife as trustees means you can't trade IB Margin account ( unless somethings changed in the last 3 years). You need to be a corporate trust, ie a company as trustee. You also have to ask yourself why you have a trust if you are appointer, trustee and beneficiary. You lose all your protection you gain from a trust, which is probably why IB/ASIC don't allow margin.

In regards to the % ownership, i just filled it out with the named beneficiaries and added the numbers up to 100%. These numbers probably make more sense to other structures, joint accounts, unit trusts etc. They don't make any sense to a purely discretionary trust and technically as trustee you can make the numbers up as you go along, which is exactly what i did.

Click to expand...

Hi DaveDaGr8,
Thanks - I considered splitting the % ownership into equal parts for each beneficiary, just thought it was strange that they asked the question as it doesn't seem relevant.

Can I ask what you filled out for the question "Classification of Trust for US Tax Purposes"?
The options to choose from in the wizard are:
1) Complex Trust (most common)
2) Grantor Trust
3) Simple Trust

Again this seems like a question not relevant for Australian trusts! - Most aussie family trusts are discretionary trusts which is not an option here and I have no idea why they are asking for "US Tax purposes" if the IB account is based in Australia? Any thoughts here?

Also, I noted that when I login to continue the application process the website changes from the .com.au site to https://www.interactivebrokers.com.hk/Universal/... which looks a little strange...

You are routed to IB Hong Kong, this is where their main servers are for this part of the world and where you will ultimately trade from. You can change that if you ask them, but for us in Australia IB HK is the fastest route. They have an office in Sydney, but no servers as far as i know.

As for working out the type of trust it will depend on your deed. These links should help.
http://www.investopedia.com/exam-guide/cfp/taxation-of-trusts-and-estates/cfp4.asp
http://www.investopedia.com/exam-guide/cfp/taxation-of-trusts-and-estates/cfp3.asp

Most likely you're a complex trust as most family trust deeds allow distributions to charities. Also they have tax file numbers, so any earnings not distributed are taxed at 48 cents in the dollar, therefore it's best to distribute any remaining to the corporate trustee at 28 cents.

BUT ... please do your own research. Trusts are very complicated and it's hard to explain the relationship of ownership and the roles of the individual positions. Google "Who owns the assets in a family trust".

DaveDaGr8 said:

A trust is not an entity, it is a trust. A company is an entity and a person is an entity. Only an entity can buy and sell assets. The trust itself can't even hold a bank account let alone assets, hence why you have to call it a stupid long winded name and the trustee actually owns the bank account. assets are held in trust by the trustee and managed by the trustee under the terms of the trust deed for the benefit of the beneficiaries.

Canoz, to use IB properly you should have a corporate trustee.

Click to expand...

Hi DaveDaGr8,
Read with interest your informative post. I have a SMSF with individual trustees and have been using for a few years an IB account set up for the SMSF. I trying to come to grips with whether I need a new IB account if I changed our SMSF from individual trustees to corporate trustee or just a change to the existing account?
Thanks in advance.

avago said:

Hi DaveDaGr8,
Read with interest your informative post. I have a SMSF with individual trustees and have been using for a few years an IB account set up for the SMSF. I trying to come to grips with whether I need a new IB account if I changed our SMSF from individual trustees to corporate trustee or just a change to the existing account?
Thanks in advance.

Click to expand...

Hi DaveDaGr8, please ignore the post. Found the answer in the forum. No new account required, just need to send IB additional info. Thanks

Not wanting to start a new thread, I will append to this older thread instead as it has some relevance.

I plan to start a family trust sometime after July 1 2018 and will use an accountant to ensure I structure it correctly. However, I have a few questions that I would like to clarify at this stage.

I currently have an individual and a company account with IB Australia, the latter with margin. I plan to use the company as Trustee for the Discretionary Family Trust I want to set up.

1. As I understand it, I can open an account with IB for the trust and that account will be allowed trade on margin as it will have a corporate trustee. Is that correct?

2. Although the company currently has assets (US and Australian shares) with IB, from what I have read, it is better to have the corporate trustee as a company with minimal assets. However, I would like to keep these assets in the company as they are part of my share trading portfolio as I do share trading under the company structure (as opposed to investing) and I would prefer to keep my trading isolated from the trusts share purchases which I want treated as investments. This is where I am a bit confused.

2a. If the company is classified as a trader (I believe I tick all the boxes that the ATO requires in that respect and my previous accountant had no issues with it either), does that have implications for the Trust being classified as an investor if the Trustee is this same company?

2b. Do the trusts investments qualify for the 50% CGT discount if held more than a year even if the Trustee is a company? I intend to distribute ALL earning to the beneficiaries at year end. The beneficiaries are me (as an individual), my spouse and our adult son. I don't intend the company to be a beneficiary.

3. One of the benefits of a corporate trustee is for succession continuity in the event of my death. Currently I am the sole director/secretary/shareholder of the company. Do I simply add my spouse and son as directors to the company so that the company doesn't become inoperative on my death (and hence unable to act as Trustee). I would like to be able to structure the company so that I maintain complete control while alive and I am the sole recipient of dividends that the company declares, but in the event of my death to have my spouse become the one with complete control and dividend entitlement, with our son last to receive that control and entitlement on my spouse's death.

Thanks for any inputs on the above.

bellenuit said:

Not wanting to start a new thread, I will append to this older thread instead as it has some relevance.

I plan to start a family trust sometime after July 1 2018 and will use an accountant to ensure I structure it correctly. However, I have a few questions that I would like to clarify at this stage.

Click to expand...

i am not a qualified accountant so you should definitely speak to yours before you do anything, but FWIW, from my experience (i keep most of my assets in a corporate trust - for asset protection purposes of course - and have done for around 10 years):

bellenuit said:

I currently have an individual and a company account with IB Australia, the latter with margin. I plan to use the company as Trustee for the Discretionary Family Trust I want to set up.

1. As I understand it, I can open an account with IB for the trust and that account will be allowed trade on margin as it will have a corporate trustee. Is that correct?

Click to expand...

my IB account is in the name of my corporate trust and i'm allowed to use margin so i assume the answer is yes. however, i opened this account about 10 years ago and they have not migrated it across to IB Australia yet - it's still with IB LLC, which may make a difference.

bellenuit said:

2. Although the company currently has assets (US and Australian shares) with IB, from what I have read, it is better to have the corporate trustee as a company with minimal assets. However, I would like to keep these assets in the company as they are part of my share trading portfolio as I do share trading under the company structure (as opposed to investing) and I would prefer to keep my trading isolated from the trusts share purchases which I want treated as investments. This is where I am a bit confused.

Click to expand...

the company is both a legal entity and a taxation entity, but the trust is a taxation entity only, it's not a legal entity. that's why the name of the account will be (company name) as trustee for (trust name), it's not just (trust name), as the trust isn't a legal entity.

since the company is a legal entity, it can potentially be sued, whereas a trust cannot be. that's why people recommend using an empty company if you're going to use a corporate trustee, especially if it's going to be the SOLE trustee - if that corporate trustee has a lot of stuff going on and happens to run into some sort of litigation from its previous dealings (perhaps a margin loan goes bad, or it gets accused of insider trading, etc), they can go after the assets in the trust, since that company is the legal entity attached to the trust's assets.

another reason is that trustees are obliged to make decisions in the best interests of the trust. so any dealings between the company and the trust could get scrutinised and potentially pulled up by ASIC, eg. it might seem tempting to transfer some shares from the trustee to the trust at some way off market price to "optimise" things between the two entities for tax purposes - well don't, you'll get busted for sure. having an empty company as the trustee avoids that possibility entirely.

bellenuit said:

2a. If the company is classified as a trader (I believe I tick all the boxes that the ATO requires in that respect and my previous accountant had no issues with it either), does that have implications for the Trust being classified as an investor if the Trustee is this same company?

Click to expand...

definitely an accountant question, but i believe that since they are separate taxation entities, the investor/trader status of the company is kept separate from the investor/trader status of the trust.

bellenuit said:

2b. Do the trusts investments qualify for the 50% CGT discount if held more than a year even if the Trustee is a company? I intend to distribute ALL earning to the beneficiaries at year end. The beneficiaries are me (as an individual), my spouse and our adult son. I don't intend the company to be a beneficiary.

Click to expand...

you don't really have much of a choice, you have to distribute all income to the beneficiaries every year otherwise the undistributed amount gets hit with some stupidly high withholding tax (48.5% i think). as for the CGT discount i think it depends on whether the trust is an investor or a trader, not the trustee (separate taxation entities as above).

bellenuit said:

3. One of the benefits of a corporate trustee is for succession continuity in the event of my death. Currently I am the sole director/secretary/shareholder of the company. Do I simply add my spouse and son as directors to the company so that the company doesn't become inoperative on my death (and hence unable to act as Trustee). I would like to be able to structure the company so that I maintain complete control while alive and I am the sole recipient of dividends that the company declares, but in the event of my death to have my spouse become the one with complete control and dividend entitlement, with our son last to receive that control and entitlement on my spouse's death.

Thanks for any inputs on the above.

Click to expand...

as part of its formation, your company would have issued a small number of shares worth some nominal amount (eg. $1) to the initial officeholders of the company. if you are the sole director/secretary/shareholder, the accountant who set up the company may have had it issue a single $1 share to you. the trust could have a million $ in it, but if that company is its sole trustee, whoever is the legal owner of that humble $1 share has control over the entire million $ portfolio. it may be possible to pass on that single $1 share to your spouse/son in your will to give them control over the assets within the trust - but i'm not sure on this, confirm with your accountant to be safe.

will assume discretionary here.........side point: depending on asset classes held and who has "real world control", multiple trustees can be used (not just one)......but more suited to lots of peeps involved who are "doing there own thing" and like some "asset separation".

Thanks Sharkman for your detailed reply.

avago said:

Hi DaveDaGr8, please ignore the post. Found the answer in the forum. No new account required, just need to send IB additional info. Thanks

Click to expand...

I have the same issue now (change to corporate trustee). May I ask what exactly did you have to do? Thanks!

I have just spoken to an accountant about setting up a Discretionary Family Trust with a Corporate Trustee. We will commence the process next week. He said that as the Corporate Trustee will not be running a business (just acting as trustee), it only needs a TFN, but not ABN. That is OK with me, but I would like to make sure than IB doesn't require the trustee company to have an ABN. Can anyone who has gone through the process confirm that an ABN is optional for IB. If mandatory, I will just get the accountant to include that as part of the establishment procedures for the company.

bellenuit said:

I have just spoken to an accountant about setting up a Discretionary Family Trust with a Corporate Trustee. We will commence the process next week. He said that as the Corporate Trustee will not be running a business (just acting as trustee), it only needs a TFN, but not ABN. That is OK with me, but I would like to make sure than IB doesn't require the trustee company to have an ABN. Can anyone who has gone through the process confirm that an ABN is optional for IB. If mandatory, I will just get the accountant to include that as part of the establishment procedures for the company.

Click to expand...

I need to retract some of what I wrote above. I have now received some documents from the accountant regarding the activities to set up the trust with corporate trustee. He will be applying for a TFN for the Discretionary Trust but not an ABN as it will only be investing, not carrying on a business. The company that is being set up to act as corporate trustee will neither have a TFN nor ABN. I have done some internet searching and the consensus seems to be that is correct, just a TFN for the trust is needed.

So my question is to those that have already gone through the procedure. Even though a TFN for the trust is all that is needed for Australian tax compliance, will IB regard a TFN for the trust as sufficient in order to open an account with them for a discretionary trust with corporate trustee. Because they often base their requirements on US corporate law, IB often forces requirements on new accounts based on what is required by their US counterparts rather than what is applicable here. Also, is the trustee TFN sufficient for setting up a bank account for the trust with any Australian banks?

I just want the accountant to also apply for an ABN if that is needed for account opening purposes, rather than having to do that at a later stage and delay being able to fund the trust.

corporate trustee only needs an ACN

trust only needs a TFN (i checked the records of the W8-BEN form i filled in for my own corporate trust IB account about 10 years ago, it only asks for a foreign TIN, which for Australia is the TFN)

however my understanding is that if you want to be able to claim back the GST paid by the trust during the course of its normal business activities, eg. for things like accountancy fees, brokerage (if you're going to use any Aust brokers in addition to IB - IB does not charge GST), then you also need an ABN

i'm not aware of any downsides to registering an ABN for the trust, since it is not running a business in the normal sense and therefore it doesn't collect any GST that would have to be repaid to the ATO. i'm quite sure there aren't any extra charges (the annual fee you'll have to pay to ASIC is levied on the trustee's ACN, not the trust's ABN), but there may well be some disadvantages to obtaining an ABN depending on your situation, so you may want to bring the above point up with your accountant and see what they say

Sharkman said:

corporate trustee only needs an ACN

trust only needs a TFN (i checked the records of the W8-BEN form i filled in for my own corporate trust IB account about 10 years ago, it only asks for a foreign TIN, which for Australia is the TFN)

however my understanding is that if you want to be able to claim back the GST paid by the trust during the course of its normal business activities, eg. for things like accountancy fees, brokerage (if you're going to use any Aust brokers in addition to IB - IB does not charge GST), then you also need an ABN

i'm not aware of any downsides to registering an ABN for the trust, since it is not running a business in the normal sense and therefore it doesn't collect any GST that would have to be repaid to the ATO. i'm quite sure there aren't any extra charges (the annual fee you'll have to pay to ASIC is levied on the trustee's ACN, not the trust's ABN), but there may well be some disadvantages to obtaining an ABN depending on your situation, so you may want to bring the above point up with your accountant and see what they say

Click to expand...

Thanks Sharkman. I'm hoping to do all my trading under IB if set-up goes without hitch and I can access margin. IB do charge GST on their Data Subscription (Real Time US quotes) Fees, but it won't matter as I won't initially be taking out Data Subscription for the trust account (as it would cost an arm and a leg due to having a corporate trustee). I currently pay those through an individual account and will continue to do so as it will take quite some time to move all my shares over to the trust due to the huge CGT that would apply if moved all at once.

I'll ask him about GST on accounting and other non-brokerage fees when we next meet this week. But I would be surprised if he was so adamant that I do not need an ABN for the trust if he was aware GST costs were not claimable.

OT
does brokerage in IB attract gst?

HelloU said:

OT
does brokerage in IB attract gst?

Click to expand...

I thought it didn't but on checking my records I see that it started charging GST on Australian buys and sells since the migration to IB Australia. I had only 1 Australian share transaction since migrating, that's why I didn't notice it. There is no GST on brokerage for Buys and Sells of US shares.

bellenuit said:

I thought it didn't but on checking my records I see that it started charging GST on Australian buys and sells since the migration to IB Australia. I had only 1 Australian share transaction since migrating, that's why I didn't notice it. There is no GST on brokerage for Buys and Sells of US shares.

Click to expand...

thx, that makes a lot more sense to me ( i was puzzled when i read that no gst thing)