Australia Proposes Investment Manager Tax Rules

by Mary Swire, Tax-News.com, Hong Kong

14 May 2010

Assistant Treasurer, Nick Sherry, and the Minister for Financial Services, Chris Bowen, have announced the start of consultations on an investment manager regime (IMR) that will reform and expand Australia's managed funds industry by removing impediments to international investment.

It is intended that these important reforms will help to build a status for Australia as a leading regional financial centre, and support growth and jobs in the Australian managed funds industry. Australia's managed funds stood at around AUD1.7 trillion (USD1.5 trillion) at the end of 2009; equal to around 135% of its gross domestic product.

The reforms will draw on the recommendations of the Australian Financial Centre Forum report, also known as the Johnson Report, which recommended that the government introduce an IMR of wide application and that the Board of Taxation (BOT) should review the scope for providing a broader range of tax flow-through collective investment vehicles.

The government has said that it supports in principle both of those recommendations, but that a key design issue will be to balance the objectives of providing certainty and enhancing the competitiveness of our financial sector with maintaining the integrity of the tax system.

With regard to the recommendations, a number of design issues relating to an IMR are to be considered, including the scope of the regime and aligning the IMR with the broader arrangements for taxing collective investment vehicles.

A central element of the consultation paper, and the future IMR regime, will be to ensure that non-residents investing in foreign assets will not face further Australian tax on their investments when using Australian fund managers (referred to as conduit relief). This was recommended by the Henry tax review, and is also supported by the government.

Important reforms could therefore be made to the treatment of conduit income of managed funds in advance of the BOT’s comprehensive review of collective investment vehicles. To launch this process, the government has released a consultation paper from the Treasury that focuses on the taxation of conduit income. Interested parties are encouraged to provide comments on that paper by June 22, 2010.

Other design issues relating to the IMR, including the taxation of non-resident investment in domestic assets, are being referred to the BOT as part of its broader review of the tax treatment of collective investment vehicles.

The government will ask the BOT to make such a review, having regard to the new managed investment trust tax framework and including whether a broader range of tax flow-through vehicles should be permitted. As part of the review, it will also examine the treatment of Venture Capital Limited Partnerships to see if they are all necessary and consistent with the government's objective of developing Australia as a leading financial centre.

Detailed terms of reference of the BOT’s review, including the dates for reporting to government, will be released in the near future. "In undertaking its review, I will ask the BOT to consider the balance between ensuring Australian fund managers can compete in the provision of services in the global economy and maintaining the integrity of the tax system and Australia's revenue base," the Assistant Treasurer said.

Recommended