Earlier this week, the Assistant Treasurer, Senator Nick Sherry, and the Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen, announced the Terms of Reference for a Board of Taxation (BoT) review into the taxation arrangements for Collective Investment Vehicles (CIV).  This follows the announcement of the review in May this year.  The review report is due to the Assistant Treasurer by 31 December 2011.

Moore Stephens commends this announcement as a positive step towards the aim of attracting foreign investment to the Australian funds management industry.Moore Stephens commends this announcement as a positive step towards the aim of attracting foreign investment to the Australian funds management industry.

The BoT has been asked by the Federal Government to examine and report on the tax treatment of CIV’s, with reference to the tax framework for Managed Investment Trusts (MIT) and giving consideration to permitting a broader range of tax flow-through CIV’s (such as corporate CIV’s).

The Government has provided the BoT with the following broad principles in conducting this review:

1. CIV’s are widely held investment vehicles (with typically long-term portfolio investors) that undertake primarily passive investment activities.  This is consistent with the eligible investment rules in Division 6C of the Income Tax Assessment Act 1936;
2. The nature of a CIV’s investment activities should determine its tax treatment, not the structure through which the funds are pooled;
3. Other than the flow through of losses (which are subject to limited special rules for their utilisation), the tax outcomes for CIV investors should be broadly consistent with the tax outcomes of direct investment.

The Government has also requested the BoT to consider the following in making its recommendations:

1. The nature and extent of any impediments to foreign investment into Australia through CIV’s, and the reasons for these;
2. The benefits of extending tax flow-through treatment for CIV’s, including the impact of granting such treatment to non-trust CIV on industry’s ability to attract more foreign funds under management in Australia; and
3. Critical design features (if any) that would improve certainty and simplicity and enable better harmonisation, consistency and coherence across the various CIV regimes, including by rationalisation of the regimes where possible.

In addition, the review should also:

• Examine the treatment of Venture Capital Limited Partnership vehicles; and,
• Consider the issues raised in the Australian Financial Centre Forum (AFCF) recommendation that an Investment Manager Regime (IMR) be introduced into the tax legislation.  The intention of the IMR is 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.

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

Author:  Allan Mortel, Moore Stephens Sydney


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Allan Mortel
T +61 2 8236 7700
amortel@moorestephens.com.au

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