The 2010-2011 Federal Budget has introduced some significant changes that will have a positive impact on the funds management industry. We welcome the announcements that have been made.

1.  Government response to the Johnson Report

The Government has provided in-principle or direct support for nearly all 19 recommendations in the Report of the Australian Financial Centre Forum entitled Australia as a financial centre: Building on our strengths. This Report was finalised in November 2009 and released in January 2010. It is also known as the ‘Johnson’ report, named after the Chairman of the Forum, Mr. Mark Johnson. The intention of the Report is to position Australia as a financial services centre, and the introduction of an Investment Manager Regime (refer below) is one measure aimed at achieving this objective.

Other recommendations made in the Report are:

• A reduction in the Interest Withholding Tax (IWT) rate. This will apply to borrowings of local subsidiaries from overseas parents and will be reduced from 10% to 7.5% in 2013-14 and to 5% in 2014-15. The IWT rate for borrowings by any bank branch from its overseas head office will be reduced from 5% to 2.5% in 2013-14 and to zero in 2014-15. The Government has announced its support for this recommendation, which was also made in the Henry Tax Review.
• The development of an Asia Region Funds Passport, which would allow eligible funds from eligible jurisdictions to be marketed across borders with minimal additional regulatory requirements.
• The establishment of an online regulatory gateway for potential overseas investors in Australia.

The Government has also asked Mr Johnson to chair a task force of senior financial sector representatives. Broadly, the role of the task force will be:

• Regional engagement and enhancement of Australia’s presence in Asia;
• Engagement with domestic industry on an informal basis; and
• Facilitation of industry input into the design of a number of proposals, including those mentioned above.

Another announcement made by the Government was the establishment of a Centre for International Finance and Regulation in Australia. While this was not identified in the Johnson Report, one of the key themes underlying the work of the Centre will be to foster financial services innovation and simultaneously ensuring that the inherent risk in the financial system is appropriately managed.

2.  Investment Manager Regime (IMR)

The Government will commence consultation on an IMR that is intended to reform and expand Australia’s managed funds industry through the removal of impediments to international investment by non-resident investors. This is done by providing them with clarity and certainty in relation to the tax treatment of the funds management sector for assets sourced offshore.

This announcement reflects the Government’s in-principle support for the following recommendations made in the Johnson Report:

• The introduction of an IMR of wide application; and
• A Board of Taxation review of the scope to provide a broader range of tax flow through collective investment vehicles.

The Government also acknowledges the recommendation from the Henry Tax Review that taxation arrangements applying to Australian managed funds should be improved to provide greater certainty that conduit income will not be subject to Australian tax as part of this reform process.

The Government has released a Consultation Paper as the basis for engagement with industry stakeholders.  For access to the Consultation Paper, click on the link below:
http://www.treasury.gov.au/contentitem.asp?NavId=037&ContentID=1806

3.  Managed Investment Trusts (MIT)

This Budget announcement follows announcements made previously:

• On 7 May 2010, the Assistant Treasurer announced a new taxation regime for MIT’s in response to the Board of Taxation’s report entitled Review of Tax Arrangements applying to Managed Investment Trusts.
• On 16 April 2010, the Assistant Treasurer released for public consultation the exposure draft legislation to amend the MIT definition for withholding tax purposes.

For further details, please refer to the Moore Property News edition entitled ‘MIT – a new tax regime’ and Moore Tax News edition entitled ‘Managed Investment Trusts – a uniform definition’.

For further information, please contact your Moore Stephens relationship partner.


Author: Allan Mortel, Moore Stephens Sydney