Enhancing Australia as a financial centre | KPMG | AU

Enhancing Australia as a financial centre: let’s get it right

Enhancing Australia as a financial centre

Natalie Raju and Peter Oliver discuss the draft legislative framework for the corporate collective investment vehicle regime and Asia Region Funds Passport.

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Pedestrian bridge over river in Melbourne.

On 25 August 2017, the Treasury released an Exposure Draft of framework legislation to implement the corporate collective investment vehicle (CCIV) regime.

This follows from the Government’s commitment in the 2016 Budget to establish CCIVs, and is welcome evidence of progress towards implementing the recommendations of the 2009 Johnson Report on Australia as a Financial Centre.

Also within the package of measures is the Exposure Draft legislation for Australia’s adoption of the Asia Region Funds Passport (ARFP).

The ARFP is a regulatory framework allowing the cross-border distribution of retail managed funds within a “single market” of participating ASEAN jurisdictions. It is anticipated that the passport will allow Australia to more effectively export its funds management capability throughout the region.

The two regimes are complimentary and in one sense, symbiotic.

The CCIV is a new type of investment vehicle which is internationally recognisable (modelled off equivalent foreign CIV regimes, but primarily the Open Ended Investment Company of the UK) and is anticipated as the vehicle of choice for Australian fund managers exporting product under the ARFP.

What has been released is framework legislation which sets the foundations for the regulatory changes required to accommodate both the ARFP and the CCIV. Once this has been consulted on and refined, the Government will then draft the consequential changes to the tax law that are required.

From what has been released, we know that the guiding principle for the tax law changes that will be made to accommodate CCIVs, is that there will be tax neutral outcomes as between a CCIV and a Managed Investment Trust. What this means:

  • The CCIV will be “tax transparent” and therefore a genuine corporate flow through vehicle for tax purposes
  • The taxation arrangements applying to Attribution Managed Investment Trusts (AMIT) will be extended to CCIVs and therefore the principles of attribution will apply
  • There will be character retention of the income of the CCIV to investors and therefore withholding tax rates will apply based on the nature of the income attributed.

Each of these measures are as expected, and welcome by the industry. However, as with all significant tax reform, the extent of consequential amendments cannot be underestimated. If we do want the CCIV to be successfully adopted as an alternative to the traditional managed fund, then there are a number of measures, such as withholding tax reform (simplification and reduction) and rollover relief for managed funds wishing to transition to a CCIV, that are essential to this success.

Submissions are due to Treasury by 21 September 2017.

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