Taxation Treatment of Collective Investment Vehicles
Design of a foreign managed funds IMR
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.
On 17 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 [PDF 1019KB | RTF 1MB], 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 in a separate announcement from the Assistant Treasurer and Minister Assisting for Deregulation. 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. The Board’s review of taxation arrangements under the Venture Capital Limited Partnership (VCLP) regime is another aspect of its broader review of the tax arrangements applying to CIVs. The Assistant Treasurer requested that the reporting date for this aspect be brought forward to 30 June 2011.
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 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) (which was 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). 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:
- CIVs in this context are widely held investment vehicles (with typically long term portfolio investors) that undertake primarily passive investment activities, consistent with the eligible investment rules in Division 6C of the Income Tax Assessment Act 1936.
- The tax treatment of a CIV should be determined by the nature of its investment activities rather than the structure of the entity through which the funds are pooled.
- The tax outcomes for investors in a CIV should be broadly consistent with the tax outcomes of direct investment, other than flow through of losses (subject to limited special rules for their utilisation).
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 nature and extent of, and the reasons for, any impediments to investment into Australia by foreign investors through CIVs;
- the benefits of extending tax flow-through treatment for CIVs, including the degree to which a non-trust CIV would enhance industry’s ability to attract foreign funds under management in Australia;
- whether there are critical design features that would improve certainty and simplicity and enable better harmonisation, consistency and coherence across the various CIV regimes, including by rationalisation of the regimes where possible.
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 ). Having regard to the likely overlap between certain issues in the Treasury consultations and the IMR, the Treasury was asked to regularly inform the Board of the progress and outcomes of its consultations. 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. 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 on the Review of the Tax Arrangements Applying to Collective Investment Vehicles submissions page. Further information on this review can be obtained from the Board of Taxation Secretariat on (02) 6263 4366.
|Alternative Investment Management Association||127KB|
|Australian Custodial Services Association||246KB|
|Australian Foundation Investment Company Limited||51KB|
|Australian Listed Investment Companies Association||28KB|
|Australian Private Equity & Venture Capital Association||949KB|
|Brandon Capital Partners||363KB|
|Brookvine Pty Limited||758KB|
|Ernst & Young||598KB|
|Financial Services Council - Submission 1||104KB|
|Financial Services Council - Submission 2||131KB|
|Greenwoods & Freehills||4MB|
|Harbert Fund Advisors (Australia) Pty Ltd||65KB|
|Henry Davis York||1MB|
|Infrastructure Partnerships Australia||744KB|
|Institute of Chartered Accountants in Australia||445KB|
|Law Council of Australia||97KB|
|Mallesons Stephen Jaques||2MB|
|Porter, Andrew J B||128KB|
|Property Council of Australia||215KB|
|Taxation Institute of Australia||81KB|