Australia Targets Offshore Funds

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

30 April 2010

Australia’s Assistant Treasurer, Nick Sherry, has released, for public consultation, exposure draft legislation for an anti-roll-up fund rule that will apply to certain offshore accumulation fund investments.

The anti-roll-up fund rule is part of wider reforms to Australia’s foreign source income anti-tax deferral rules that were announced in the 2009-10 budget, and follows the decision to repeal the foreign investment fund rules.

The rule will operate if, under a scheme, an investor gets a tax deferral benefit for an income year. It does not matter whether the scheme (or any part of it) was entered into or carried out inside or outside Australia.

An investor would be judged to have received a tax deferral benefit from a foreign accumulation fund equal to the difference between the proportion of the total annual profits and gains of the fund reasonably attributable to the investor’s interest in the fund, and the total of the distributions of profits and gains made to the investor during that income year.

“When legislated, the anti-roll-up fund rule will operate as a specifically targeted anti avoidance rule that maintains the integrity of Australia’s tax system by targeting investments in certain offshore funds,” the Assistant Treasurer said. “These funds accumulate profits in low-tax jurisdictions or at rates lower than Australian equivalent taxes and do not distribute them to their Australian investors.”

The government is seeking submissions from interested parties on the exposure draft. Submissions close on May 26, 2010.

Recommended