Just prior to Christmas, Treasury released for consultation Exposure Draft Treasury Laws Amendment (Corporate Collective Investment Vehicle) Bill 2017: (Tax treatment) to implement the tax framework for the new Corporate Collective Investment Vehicle (CCIV).
The CCIV will broaden the suite of investment vehicles available to Australian fund managers by introducing a new corporate vehicle (intended as an alternative to a managed investment trust) that is more commonly offered in overseas markets and therefore potentially more exportable. The new CCIV will need to meet similar eligibility criteria to a managed investment trust, such as being widely held and engaging in primarily passive investment activities.
The core guiding principle for the CCIV is that the tax treatment broadly aligns with the way Attribution Managed Investment Trusts (AMITs) are currently taxed - ie on an attribution and character flow-through basis - providing investors with tax outcomes that are equivalent to the tax outcomes that would apply had they invested directly.
Whilst the guiding principle appears sound, there are a number of features within the Exposure Draft that would appear to make the CCIV less attractive than an AMIT:
- The Bill is structured such that the relevant taxpayer is the CCIV, as opposed to each individual sub-fund within the CCIV, and the core integrity measures are also structured such that they require satisfaction across the entire CCIV. In some respects, recognition of the CCIV as the relevant entity seems contradictory to the qualification requirements which look at each sub-fund. The alternative to treat each sub-fund as the relevant taxpayer would be significant in protecting investors in one sub-fund from the adverse consequences that would otherwise arise from events occurring in another sub-fund, and would also better align the CCIV regime with the AMIT regime.
- The consequences of ceasing to meet the eligibility criteria for a CCIV are more punitive than in the case of an AMIT. The CCIV faces the possibility of not only being taxed as a corporate but also having all future distributions taxed as unfranked distributions (contrast this to public trading trusts which are franking entities).
While resolving the above issues would go some way to achieving alignment of the CCIV with an AMIT, there is an opportunity to make the CCIV more attractive with minimal or no impact to revenue:
- To enable immediate take up, the draft Bill should expand the scope of the “rollover” relief that is available on conversion of an AMIT to a CCIV, by allowing all of the tax attributes attaching to the interest in the former vehicle to carry over into the new CCIV (not just capital gains).
- The withholding tax rates for income attributed to non-resident shareholders in the CCIV should be reconsidered in light of the fact that the CCIV is the ‘passport’ vehicle of choice under the Asia Region Funds Passport, and the lower withholding tax rates that fund managers in equivalent overseas jurisdictions will be able to offer.
- We would also like to see the much anticipated Taxation of Financial Arrangements (TOFA) portfolio hedging provisions expedited and released as a key feature of the new CCIV regime.
- The ability to offer multicurrency sub-funds by enabling the adoption of the functional currency election would also be an attractive and modernising feature of the CCIV. Whilst the new CCIV regime is a much anticipated and welcome initiative, overcoming some of these tax limitations will be critical to its widespread adoption.
KPMG has lodged a submission with Treasury setting out in more detail the above recommendations.