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Review of Tax Arrangements Applying to Collective Investment Vehicles

On 4 June 2015, the Government announced the release of the Board’s final report  on the Review of Tax Arrangements Applying to Collective Investment Vehicles.

Background

On 11 May 2010, the then Assistant Treasurer and the then Minister for Financial Services, Superannuation and Corporate Law announced that the Government would ask the Board of Taxation to review the tax treatment of collective investment vehicles (CIV), having regard to the new managed investment trust (MIT) tax framework and including whether a broader range of tax flow-through vehicles should be permitted. As part of the review, the Board also examined the treatment of Venture Capital Limited Partnership vehicles.

This review arises from the report of the Australian Financial Centre Forum (AFCF) (the Johnson Report), released by the Government in January 2010, which recommended “that the Treasurer request the Board of Taxation to review the scope for providing a broader range of tax flow through collective investment vehicles” (Recommendation 3.3).

Terms of Reference

On 12 July 2010 the then Assistant Treasurer and the then Minister for Financial Services, Superannuation and Corporate Law announced the terms of reference for the Board’s review. The Board was asked to examine and report on the tax treatment of CIVs, having regard to the MIT tax framework and including whether a broader range of tax flow-through CIVs (such as corporate CIVs) should be permitted. The review had regard to the following broad principles:

As part of the review, the Board was asked to examine the effectiveness of the special tax treatment accorded under the Venture Capital Limited Partnership regime in a way that recognises its policy objectives. In making its recommendations, the Board was asked to consider:

The Board was also asked to examine and report on the design of an IMR for investments by foreign residents managed in Australia. The Government asked the Treasury to consult on issues relating to the taxation of conduit income of managed funds as recommended in Australia’s Future Tax System review (Assistant Treasurer’s Media Release No 92 of 11 May 2010 ).

The Board’s recommendations should seek to enhance Australia’s status as a leading regional financial centre and support growth and employment in the Australian managed funds industry while maintaining the integrity of the tax system and revenue neutral or near revenue neutral outcomes.

The Board was asked to report to the Assistant Treasurer by 31 December 2011.

Discussion Paper, Consultations & Submissions

On 17 December 2010, the Board of Taxation released its discussion paper on the review of the tax arrangements applying to collective investment vehicles. The Chairman of the Board of Taxation announced the release of the discussion paper via a press release. The Board developed this discussion paper to facilitate stakeholder consultation.

To assist in the Review process, the Board conducted consultation meetings on 2 February 2011 in Melbourne and 4 February 2011 in Sydney. The consultation meetings were attended by representatives from taxation professional bodies, major law and accounting firms, various major corporations and business associations.

The Board requested written submissions on its review by 28 February 2011. All submissions received were acknowledged. Copies of public submissions made to the Board are available below.

Design of a foreign managed funds Investment Manager Regime

On 16 December 2011, the Minister for Financial Services & Superannuation announced that the Government will implement an investment manager regime (IMR) for foreign managed funds broadly in line with that recommended by the Board in its report on the review of an IMR as it relates to foreign managed funds. The Government’s response to the Board’s recommendations was welcomed by the then Chairman of the Board of Taxation, Mr Chris Jordan AO.

The Board’s review of an IMR for foreign managed funds is one aspect of its broader review of the tax arrangements applying to collective investment vehicles (CIVs). The Assistant Treasurer requested that the reporting date for this aspect be brought forward to 30 September 2011.

The Board made 12 recommendations in relation to the introduction of an IMR for foreign managed funds. In framing its recommendations the Board consulted with industry and tax practitioners. The Board believes that the introduction of an IMR for foreign managed funds should assist in removing tax related impediments to international investment into Australia by foreign managed funds and impediments to the use of Australian intermediaries by these funds.

Review of the Venture Capital Limited Partnership regime

On 18 February 2013, the Deputy Prime Minister and Treasurer and the Minister for Industry and Innovation jointly announced the release of the Venture Australia package, which contains the Government’s response to the Board of Taxation’s report on its review of taxation arrangements under the Venture Capital Limited Partnership regime, and the Government’s response to the review into venture capital and entrepreneurial skills. Details of the Government’s response to the Board’s report are set out as an attachment to the announcement from the Assistant Treasurer and Minister Assisting for Deregulation on 18 February 2013.

The Board made three recommendations in relation to the taxation arrangements under the VCLP regimes, with a series of sub-recommendations. The Government has accepted all three recommendations, with one sub-recommendation accepted in principle. The Government’s response to the Board’s recommendations was welcomed by the Chair of the Board of Taxation, Mrs Teresa Dyson.

On 14 December 2013 the Government announced that it would not proceed with a range of measures announced but unenacted. The Venture Capital Limited Partnership regime recommendations as outlined by the Board and initially accepted by the Government were included in the measures abandoned by the Government.

As part of the National Innovation and Science Agenda new arrangements for Venture Capital Limited Partnerships apply from 1 July 2016. The reforms took into consideration recent reviews, including by the Board of Taxation (2011), and the Treasury and the Department of Industry, Innovation, Science, Research and Tertiary Education (2012), and were finalized in consultation with industry stakeholders. The Tax Laws Amendment (Tax Incentives for Innovation) Act 2016 received Royal ascent on 5 May 2016.

Review of the tax arrangements applying to Collective Investment Vehicles

The Board completed its review of the tax arrangements applying to CIVs and provided its report to the Assistant Treasurer in December 2011. In preparing its report the Board took into account the various submissions to the review and discussions with stakeholders and its expert panel. This report follows the Board’s earlier completion of the Venture Capital Limited Partnership component of this review in June 2011, and the completion of the IMR for foreign managed funds component of this review in August 2011.

On 4 June 2015 the Government announced the release of the report together with a number of other Board of Taxation reports.

While there was no formal announcement from the Government as to their position on the report, in the 2016-17 Budget the Government announced measures regarding changes to CIV’s, with Budget Paper No. 2 stating “The new CIVs will be required to meet similar eligibility criteria as managed investment trusts, such as being widely held and engaging in primarily passive investment. Investors in these new CIVs will generally be taxed as if they had invested directly.’ These changes were Board recommendations but the Board recommended against the adoption of the MIT tax regime, as it taxes all CIVs as Trusts (see recommendation 2 of the report).

Further information on this review can be obtained from the Board of Taxation Secretariat on (02) 6263 4366 or at Taxboard@treasury.gov.au.

Submissions received

SubmitterDownload
Alternative Investment Management Association127KB
Australian Custodial Services Association246KB
Australian Foundation Investment Company Limited51KB
Australian Listed Investment Companies Association28KB
Australian Private Equity & Venture Capital Association949KB
Brandon Capital Partners363KB
Brookvine Pty Limited758KB
Clayton Utz216KB
CPA Australia63KB
Deloitte5MB
Equity Trustees347KB
Ernst & Young598KB
Financial Services Council - Submission 1104KB
Financial Services Council - Submission 2131KB
Greenwoods & Freehills4MB
Harbert Fund Advisors (Australia) Pty Ltd65KB
Henry Davis York1MB
Infrastructure Partnerships Australia744KB
Innovation Australia130KB
Innovation Capital232KB
Institute of Chartered Accountants in Australia445KB
Law Council of Australia97KB
Mallesons Stephen Jaques2MB
Moore Stephens179KB
OneVentures119KB
Pitcher Partners166KB
Porter, Andrew J B128KB
PriceWaterhouseCoopers255KB
Property Council of Australia215KB
Starfish Ventures194KB
Taxation Institute of Australia81KB

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