The Corporate Collective Investment Vehicle Framework and Other Measures Bill 2021 has been introduced to the Commonwealth Parliament, after 5 years of policy development and consultations.
The regime for the corporate collective investment vehicle (CCIV) is set to commence on 1 July 2022. It will provide an alternative to using trusts as the preferred form of investment fund in Australia, opening up greater opportunity for export of financial services, and the potential to modernise the domestic funds industry as well.
A CCIV will be a company with variable share capital, which will be functionally similar to a managed investment scheme (MIS) and have AMIT-like flow through tax treatment. It will have some different features including a single corporate director, and sub funds or “protected cells” that will have separate investors, assets and liabilities, and be separate taxpayers.
Significant improvements to the corporate rules
In our previous client update on the exposure draft legislation in August, we reported that the major stumbling blocks to a successful CCIV regime - concerning certain default tax outcomes, the depositary requirement, and prohibitions on listing and “cross investment” within the CCIV - had been removed in that draft bill, clearing the way for a successful regime.
Now, with the Bill in final form, we are happy to see that many of the remaining issues with the corporate structure we had raised in our various contributions to submissions through the Financial Services Council and the Law Council have been addressed.
The improvements include:
- more logical treatment of how sub funds function,
- better alignment of application and redemption prices and processes with managed investment schemes,
- some reduction of regulation applying to CCIVs that have only wholesale clients, and
- the classification of a CCIV as always being a wholesale client itself.
Other issues we had raised that have not resulted in changes to the Bill seem mostly able to be addressed by Regulations and ASIC policy, which are expected in the first half of 2022, although we would like to have seen provisions allowing a sub fund to change its corporate director independently of the whole CCIV. The Regulations may be released for consultation as early as December.
Base tax structure much improved and default system better but not perfect
The basic tax structure for a CCIV aligns with the AMIT regime which currently exists for managed investment schemes.
An important positive change from the exposure draft is the ability for a non-widely held CCIV or sub fund to create a present entitlement to income by making a distribution within three months of the end of an income period. This seeks to provide that the taxable income of the non-widely held CCIV or sub fund will be assessed on a look through basis for that year.
Other changes are less helpful, including a revision from the exposure draft to introduce a concept of trust income which is based on accounting income. This may be different to the concepts which exist in the terms of trust deeds and the existing treatment of a Division 6 trust. In addition, the concepts of entitlement are based on the tax definition of “dividend” within the meaning of the Income Tax Assessment Act 1936 (Cth).
Overall, the default tax regime is better than in earlier versions of the Bill. It will still require some specific attention when creating a CCIV. The default tax systems for CCIVs may operate in a different way than for trusts which fail to be widely held.
The missing piece - transition
The time between this year’s May budget announcement and the Bill landing in Parliament has been very short by the standard of normal Government processes. This has meant there has only been time to finalise the core legislation.
A key aspect on everyone’s wish-list which is missing in the Bill is the ability for existing managed investment schemes to change their form into a CCIV while preserving the tax status of both the fund and investors. Comfort that there will be no adverse stamp duty consequences is also needed, but of course that is up to the States.
Starting work on your new CCIV
Our close involvement in the development of the Bill means we are ideally placed to help you launch your first CCIV once the legislation commences in July. As our firm did upon the establishment of the MIS regime two decades ago, we will produce market leading documents for CCIV establishment and be ready to advise on the nuances of the new regime when it commences.