Help opening an Interactive Brokers account with a Corporate Trustee

[Sharkman]

yes you're right IB Aust would be charging GST since they are domiciled in Aust so they would be obliged to do so

my corporate trust account is still under IB LLC (and hopefully it remains there letting me retain the much better SIPC protection) so i forgot about the whole migration thing, that's why i wrote that IB doesn't charge GST, as i've never paid it from my IB account - apologies for the confusion!

interested to hear what your accountant has to say on the subject, as i think being able to claim back GST is a pretty good reason to get an ABN (i have one for my own trust). however there may be some downsides to doing that which i'm unaware of!

 

[bellenuit]

yes you're right IB Aust would be charging GST since they are domiciled in Aust so they would be obliged to do so

my corporate trust account is still under IB LLC (and hopefully it remains there letting me retain the much better SIPC protection) so i forgot about the whole migration thing, that's why i wrote that IB doesn't charge GST, as i've never paid it from my IB account - apologies for the confusion!

interested to hear what your accountant has to say on the subject, as i think being able to claim back GST is a pretty good reason to get an ABN (i have one for my own trust). however there may be some downsides to doing that which i'm unaware of!

Just so there is no confusion, when you say claim back GST, do you mean get a refund of the GST paid. I am assuming that is not what you mean, but instead mean that the GST will be included in the cost base of purchases and deducted from the proceeds of sales when working out capital gains, just as it is for an individual.

 

[Sharkman]

no, that is what i meant. you get a straight refund of all GST the trust pays at tax time. your accountant will (or should) total up all the GST your trust has paid, submit the claim to the ATO and have it credited back to an account that you nominate.

it's like any other business with an ABN, which is obliged to charge customers GST for the goods and/or services it provides, declare that GST in its BAS, net off the GST it has to pay to its own suppliers, and pay the balance to the government. a trading or investing trust won't have customers and won't be charging any GST, so it just claims back any GST it's paid for things like accountants fees and brokerage.

you don't need an ABN to include GST in your cost base - even individual entities can do that. but having an ABN lets you act like an actual business when it comes to GST and claim all of it back since you won't be charging anybody any GST yourself.

 

[rnr]

no, that is what i meant. you get a straight refund of all GST the trust pays at tax time. your accountant will (or should) total up all the GST your trust has paid, submit the claim to the ATO and have it credited back to an account that you nominate.

it's like any other business with an ABN, which is obliged to charge customers GST for the goods and/or services it provides, declare that GST in its BAS, net off the GST it has to pay to its own suppliers, and pay the balance to the government. a trading or investing trust won't have customers and won't be charging any GST, so it just claims back any GST it's paid for things like accountants fees and brokerage.

you don't need an ABN to include GST in your cost base - even individual entities can do that. but having an ABN lets you act like an actual business when it comes to GST and claim all of it back since you won't be charging anybody any GST yourself.

If you are investing then surely you are not running a business as in trading shares to generate income. An investor would be required to capitalise any acquisition costs (including brokerage and any associated GST) and as such could not claim a refund of GST.

 

[Sharkman]

this is the ATO guideline:

https://www.ato.gov.au/General/Capi...-trading-as-business-/#Sharetradingasbusiness

i had a re-read of the guideline and you could be right. trading activity is much more likely to be considered as a business, but if the trust just buys & holds, then it may have some difficulty.

i have been claiming GST refunds for the last 10 years and got one every year from the ATO. however my corporate trust is clearly undertaking trading activities - i make 200-400 trades per year, most of those being options, and when i do take on a stock position i usually only hold it for about 50 days (to qualify for the franking credits).

 

[bellenuit]

my corporate trust account is still under IB LLC (and hopefully it remains there letting me retain the much better SIPC protection)

Yes, I have been agonising over that for the last few days. My US shares are about 54% of my holdings and are all with IB. The other 46% are Australian shares and about 75% of those are with IB, the rest with Nabtrade. I was planning to go IB only, but I am now thinking that when I move everything across to the trust (over time) maybe I should put all my Australian shares with Nabtrade and just have my US shares with IB.

IB intends to move all account to IB Australia over time and perhaps even new trust accounts immediately. Splitting my holdings that way would give me less exposure in the event that IB fails for some reason, but the downside is the extra cost of dealing with Nabtrade. For large trades ($20K+), IB are 0.08% vs Nabtrade 0.11%. Interest rates on Australian margin balances are 3.31% with IB (less if over $140k) vs 5.95% with Nabtrade (using a NAB Margin Lending Facility). That amounts to $2,640 more on a $100k margin loan over a year plus the extra commission. I really don't know if it is worth it at that price, because there is always the possibility that Nabtrade could run into strife before IB or whatever event causes IB to fail could also cause Nabtrade to fail. I'll sleep on it and decide tomorrow as my trust documents are now ready for signing.

 

[HelloU]

side point - NAB are chess for ur 'safety' concerns.

 

[bellenuit]

side point - NAB are chess for ur 'safety' concerns.

I’ll look up what protection Chess offers. IBA, apart from it being part of IBKR, seems wanting, particularly as your shares are held in their name or that of some nominee company that they appoint. I’m not worried about cash security as I will probably always have a negative margin balance, but in relation to the shares there doesn’t seem much. I received this from them:

As an AFSL holder, Market Particpant and Clearing Participant Interactive Brokers Australia requires to maintain one or more Trust/segregated client money accounts (Client Money Accounts held in Trust) with a bank, for the holding of monies it receives on behalf of clients. This means it is protected in the case of insolvency from IBA's creditors. Client money is segregated from house money and IBA only uses client money as directed by Clients or as allowed under the Corporations Act 2001.

In addition, IB Australia is a participant of ASX. For securities traded on ASX, clients may be able to access the National Guarantee Fund (NGF) if you suffer losses in certain circumstances (but not due for instance to market losses). However, claiming from NGF would be subject to their guideline. For further details, you should read the material or contact NGF directly.

 

[HelloU]

chess script is accounted for via your HIN, so if broker goes bust the HIN shows who 'owns' the share and you can xfer it to another chess broker (theoretically easy).........

 

[Sharkman]

yep, and that's why i'm praying like mad that my corporate trust account doesn't get migrated for as long as possible (hopefully never) and stays under IB LLC so it keeps getting that SIPC protection. there's no comparison - i believe SIPC covers up to 500K USD equiv (stocks + cash + most other types of assets) whilst the AFG just covers 250K AUD (cash only - your stocks may well be lost if the broker goes down)

if i was in your shoes i'd move the Aust shares to Nabtrade or another CHESS sponsorship broker, and keep the US shares in IB for the better brokerage rates. i'd never keep my full portfolio with a single nominee account broker after what happened with Sonray, MF Global etc.

as already noted CHESS is even safer than having SIPC protection, under CHESS sponsorship you retain both the beneficial and the legal ownership of the stock, so you are fully protected if the broker goes down

that's pretty much what i do... i've reached the point where SIPC protection doesn't even cover half my portfolio, so i use the IB account only for option trading and keep it just below the SIPC limit, moving the excess funds to a CHESS broker and into the buy & hold component of my portfolio as needed

 

[bellenuit]

i believe SIPC covers up to 500K USD equiv (stocks + cash + most other types of assets) whilst the AFG just covers 250K AUD (cash only - your stocks may well be lost if the broker goes down)

IB LLC coverage may be even better than that. According to the website:

Customer securities accounts at Interactive Brokers LLC are protected by the Securities Investor Protection Corporation ("SIPC") for a maximum coverage of $500,000 (with a cash sublimit of $250,000) and under Interactive Brokers LLC's excess SIPC policy with certain underwriters at Lloyd's of London 1 for up to an additional $30 million (with a cash sublimit of $900,000) subject to an aggregate limit of $150 million.

However if the aggregate limit is just $150 million across all clients, I don't think any one individual investor is likely to get much additional coverage.

if i was in your shoes i'd move the Aust shares to Nabtrade or another CHESS sponsorship broker, and keep the US shares in IB for the better brokerage rates. i'd never keep my full portfolio with a single nominee account broker after what happened with Sonray, MF Global etc.

Yes, I think that is the way to go. I already have a relationship with Nabtrade for both a company and individual account, so adding the trust with them makes sense. One other advantage with Chess is that the dividend statements show the franking credits so one doesn't have to calculate them. Not that it is difficult, but I have found that the IB report at year end that lists the franking credits usually has a few errors (in my experience anyway)

 

[bellenuit]

interested to hear what your accountant has to say on the subject, as i think being able to claim back GST is a pretty good reason to get an ABN (i have one for my own trust). however there may be some downsides to doing that which i'm unaware of!

According to my accountant: you can't claim back the GST, unless the trust is in Business and Registered for GST.

 

[Sharkman]

According to my accountant: you can't claim back the GST, unless the trust is in Business and Registered for GST.

yes, that sounds about right - i was mistaken earlier, but only realised that after i reread the ATO guidelines that i linked above. sorry for the confusion!

however, i am quite sure that trading for profits (as opposed to investing for passive income) does count as being in business, otherwise the ATO would never have let me claim GST refunds for the past 10 years.

 

[bellenuit]

I am currently going through the arduous process of opening a margin account with IB for my newly established Family Trust.

I have gotten as far as the section where its asks for documents to be sent.

1. Proof of Existence of XYZ Family Trust
2. Proof of Principle Place of Business Address for XYZ Family Trust
3. Certified Proof of Identity for XYZ Family Trust
4. Certified Proof of Address for XYZ Family Trust

For 1. I have uploaded a copy of 3 relevant pages from the trust deed that had already been certified by the accountant. The Cover Page, Schedule 2 which has the key details (Beneficiaries, Date of Trust, Name of Trust, Beneficiaries etc) and the last page which has the signature of the Settlor and Initial Trustee. I have left out the trust deed body as that would take ages to upload and doesn't add anything to the proof of existence of the trust.

For 2. They will accept a bank statement, but as I haven't opened a bank account yet, that will have to wait. I am surprised that the trust deed documents or anything provided me by the accountant does not show the address of the family trust. I would guess that if I had an ABN (which has not being applied for) that might have it. I am awaiting a TFN for the trust, hopefully that will have the trust address.

For 3 and 4 the only acceptable documents for proof are "Certified Proof of Identity" and "Certified Proof of Address". So I am not sure what they want me to send.

How did those that opened an account with IB for a corporate or any trust fare with these 4 questions?

 

[bellenuit]

I finally have gotten some documents to them that I am hoping will suffice. My accountant confirmed the trust doesn't have an address and they should be looking at the Trustee Details for 2 through 4 above. I am now waiting for them to get back to me.

Their application process is appalling. There really is no other way to describe it. Completely ambiguous questions that one cannot easily tell whether they are in reference to the trust, the corporate trustee or corporate trustee director. Sometimes you fill out a page of the application and make a minor error and it returns you to the page but has all values that you entered cleared, not just the item in error. Sometimes instead of clearing everything you entered, it unchecks some mandatory box that is not noticeable and you then get another error when you have corrected the first. It's hard to believe that they make the application process so slow, complex and error prone.

I just played around with IG as it has been touted as an alternative broker for overseas trading though a bit more expensive. I filled in the application up to the point of submission, but then saved it and exited. It was the complete opposite to IB. Clear simple questions with no ambiguity. Should my IB application fail, I would be very tempted to go with IG.

 

[HelloU]

hey, few quickies......
1. I often buy thru beneficial (IG) and then xfer to a chess account (for a variety of reasons).....you just use the beneficial PID number where the form asks for your HIN at originating broker (IG xfer out for free - my chess xfers in for free)....
2. IG as a broker for local sell orders is not great unless you want to execute immediately/same day.....they do not do conditional orders (have not bought US thru them/related so dnk for this) so are limited in holding use......
3. An advantage of beneficial (that has just become apparent to me) is that if you are at threat in chess of having your shares sold out from under u due to 'marketable parcel' requirements then this does not happen under beneficial.......(Tawana/Cowin demerger).

 

[bellenuit]

hey, few quickies......
1. I often buy thru beneficial (IG) and then xfer to a chess account (for a variety of reasons).....you just use the beneficial PID number where the form asks for your HIN at originating broker (IG xfer out for free - my chess xfers in for free)....
2. IG as a broker for local sell orders is not great unless you want to execute immediately/same day.....they do not do conditional orders (have not bought US thru them/related so dnk for this) so are limited in holding use......
3. An advantage of beneficial (that has just become apparent to me) is that if you are at threat in chess of having your shares sold out from under u due to 'marketable parcel' requirements then this does not happen under beneficial.......(Tawana/Cowin demerger).

Thanks HelloU, but I was only looking at IG in respect to US trades. I am going to use Nabtrade for Aussie stocks as I already have accounts with them and as per our previous discussion has the advantage of Chess holding. I will use their Cash Account as the Trust account and there is a High Interest Account that you can open that gives around 2.15%. Some other online accounts are better, but I really am not interested in pursuing honeymoon rates just to get an extra 0.5%. I don't expect to have much funds sitting there in any case.

The gotcha with IG in comparison with IB is their 0.3% spread from the spot rate for foreign share trades. So a $20K US order will incur USD60 on the buy side as well as the sell side in addition to brokerage. I believe this can be avoided if you have a cash account in US currency as you do not need to convert for each trade (but presumably you will have to pay it anyway to get funds in to the respective currency from your Australia currency). IB are so close to the spot rate to be negligible.

However, I still have a company account for US trading with IB, so the IG rates will not be a big issue as I will mainly be holding long term assets for the trust.

 

[Tooth Faerie]

I'm applying through my corporate trustee as well and I'm up to the certifying documents stage.

What a pain this application is.

I realise that this account is classified as "professional" so the market data fees are more than 10 times that if an individual account. That's going to be a drag of already more than $1000 p.a.

I needed data for CME futures , does anyone have any alternatives?

 

[bellenuit]

What a pain this application is.

I agree 1000+. However, I cannot help you with your CME futures data other than opening a minimal account with some other broker that has more reasonable fees and using it in conjunction with IB, if that is practical in your case.

 

[Tooth Faerie]

I agree 1000+. However, I cannot help you with your CME futures data other than opening a minimal account with some other broker that has more reasonable fees and using it in conjunction with IB, if that is practical in your case.

Do you have any recommendations for the cheapest alternative broker for just data use?

What part of the application are you up to now? Do they ever need us to prove out net worth and liquid net worth we put down as part of the application?