US tax form causes headaches for ETF investors


By Krystine Lumanta

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The process of lodging the United States taxation form W-8BEN for non-Australian-domiciled exchange-traded funds (ETF) has created an administrative bottleneck and cost burden for financial planners.

The W-8BEN form is paper-based and needs to be completed by each investor for every security held that may distribute US-sourced income.

Investors who do not lodge a W-8BEN form are subject to US withholding tax, deducted at a rate of 30 per cent of distributed income.

The BetaShares Investment Trends ETF Report, released in April, found that of the 29 per cent of planners encountering problems with ETFs, 22 per cent identified the W-8BEN form as the biggest issue, an increase of 6 percentage points from the previous year.

“In Australia, advisers have been talking to us and others about the issue with the W-8BEN form as it relates to investments overseas,” BetaShares managing director Alex Vynokur told financialobserver.

“It’s not ideal. It’s counter-intuitive.

“You can imagine with an adviser that has a lot of clients and for financial planning groups that have thousands of clients, it quickly becomes quite a significant administrative imposition and that, of course, ends up having a cost, which could potentially be quite meaningful.”

BetaShares had been investigating ways to design its products to resolve the W-8BEN issue and believed it was achievable, Vynokur said.

“We’ve been doing quite a lot of work to try to firstly understand the issue and [then] to make sure that we incorporate a solution as part of our product development, as there are certain things that product issuers can do in order to remove the need for investors to fill out the form,” he said.

“We are working on launching some international products so Australian investors can expect, some time soon, some product solutions that provide exposures to markets like the United States in a way that does not carry additional administrative burdens.”

Solving that particular administrative burden of non-Australian-domiciled ETFs was an important step, as it encouraged greater adoption of those investments, he said.

“Our job is to continue to grow the Australian ETF market, and I believe one of the key ways to do that is to remove these barriers, as ETFs are known as simple, transparent investment vehicles,” he said.

“Being an Australian-based ETF issuer, this is one of the things we as a business are very focused on and we think a solution to this is not far off.

“As the Australian ETF market continues to mature, there continues to be a breadth of new products offered to investors, which is great, but we believe certain existing exposures, such as international equities, must be made easier to access and easier to administer.”

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