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The Australian Stock Exchange lists several popular Exchange Traded Funds that provided exposure to the US market (e.g. IVV and VTS).

Some of these are CHESS Depositary Interests (CDIs), described in the VTS Prospectus as:

CDIs are Australian financial instruments designed to give its holders rights and entitlements (i.e. a beneficial interest) in relation to holding foreign financial products, such as the US ETF Securities. A Depositary Nominee holds title on behalf of CDI holders. In the case of the US ETF Securities, the nominee is CHESS Depositary Nominees Pty Limited (CDN) who is the holder of the AFS License 254 514 and is an approved participant in the clearing and settlement facility operated by ASX Settlement Pty Limited.

Many of these are domiciled in the United States and as such the beneficial owner may be subject to US Estate Taxes.

How could this situation affect an Australian investor?

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  • What do you mean "domiciled in the United States"? Aren't you going to buy them on the ASE?
    – littleadv
    Aug 16, 2016 at 16:57
  • And US Federal estate taxes don't generally cut in until over USD 5 million.
    – Peter K.
    Aug 16, 2016 at 23:16
  • 1
    @PeterK. that's actually not so. The exemption amount for NRA is $60K.
    – littleadv
    Aug 16, 2016 at 23:35

2 Answers 2

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I don't think the location of the funds is any of your concern. You're buying a CDI, which is:

Australian financial instruments

The US has no jurisdiction over you, being you an Australian, so unless you own a US-based asset (i.e.: a real-estate in the US, or a US brokerage account), US tax laws shouldn't matter to you.

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  • 3
    It may not be so simple. Blackrock states: "An investor (who is not a US citizen and is not domiciled in the US) may be subject to US estate tax if at the time of their death, they beneficially own CDIs." Oct 30, 2016 at 7:52
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The following is from a 2017 ETF Watch article. Note particularly the part about the W8-BEN form.

What are the considerations when investing in internationally domiciled ETFs?

There’s some specific tax considerations investors must be aware of when investing in internationally domiciled ETFs. We asked David Bassanese from Betashares (whose ETFs are all Australian Domiciled) to explain some of the intricacies. David explains “The key advantage in using locally domiciled funds providing international investment exposure is less paper work to ensure one does not pay more US withholding tax than is needed. Those investing in cross-listed funds, are required to fill out and send off a (W8-BEN) form to be eligible for reduction in US withholding taxes from 30% to 15%. For locally domiciled funds, these forms are filled out once by the ETF provider, obviating the need for each individual investor in the fund to face this burden.”

David also told us some estate planning considerations which arise if the investor was to pass whilst holding the ETF, “…some investors may then be subject to US estate tax on their offshore investments, which is not the case with locally domiciled funds”.

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