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US property tax changes to tempt AU super funds

By Owen Holdaway
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Australian investors wanting exposure to US property would benefit from the potential scrapping of the US Foreign Investment in Real Property Tax Act 1980 (FIRPTA), according to global asset manager Russell Investments.

Based on President Barack Obama’s 2014 Budget proposal, FIRPRA would be reformed to give foreign funds the same tax obligations as domestic ones.

“With US pension funds generally exempt from US tax upon the disposition of US real property investments...[the Obama administration therefore] proposes to put foreign pension funds on an approximately equal footing,” The White House said in a statement.

The removal of the tax would reduce not only the tax burden itself, but would also simplify the administration of Australian funds wanting US property exposure.

“If it is removed it is definitely going to make it a lot easier for Australian investors to invest into the US because you are not going to have to put together some complex structure to avoid tax,” Russell senior research analyst Samantha Steele told Smart Property Investment's sister title, InvestorDaily.

Russell argues that these potential tax changes will add to the already healthy appetite among Australian investors for re-orientating their portfolios to US housing and infrastructure.

“While Australian institutional investors have long discussed the need to capture global property opportunities, it seems this tax announcement may be the tipping point which will see a more definite move offshore for many funds,” Ms Steele said.

Russell also sees the potential for large, more conservative funds to gain US exposure with a simplified tax regime.

“If it comes into play, this is definitely going to increase the interest of, say, Australian superannuation funds considering investing offshore,” Ms Steele said.

“We have seen the momentum build in terms of investors looking to invest offshore in terms of infrastructure and real estate and I think that will just add to that because it is yet another barrier that will have been removed.”

President Obama’s 2014 Budget proposal was submitted to Congress on April 10 and has to be ratified both by the House of Representatives and the Senate before it can become law.

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