This article was written by Andrew Clements.
The Government today released draft legislation for the tax treatment of Corporate Collective Investment Vehicles (CCIVs) and the draft legislation for the Asian Region Funds Passport.
The tax legislation which has been released is a particularly important first step towards developing a robust tax system to support a successful corporate collective investment regime. The progress made in draft legislation is encouraging, however there are a number of aspects of the legislation which we believe will need to be developed further in order to maximize the opportunity for the success of the new regime.
The Government also foreshadowed further consultation in relation to regulatory aspects of the new CCIV in the first half of 2018.
The consultation process closes on:
- 25 January 2018 for the passport legislation; and
- 2 February 2018 for the tax legislation.
We will continue to be actively involved in the relevant consultation processes dealing with this important legislation.
Some of the key takeaways in relation to the new tax legislation are outlined below.
Model based on AMIT regime
- It is based on the model for attribution managed investment trusts and seeks to provide flow through tax treatment together with deemed capital gains tax treatment.
Tax status of sub-funds
- The regime continues to develop the concept of sub-funds being treated as separate tax entities.
- It is proposed that the current widely-held test and closely-held restrictions will need to be satisfied by each sub-fund. This is an aspect of the legislation which is likely to require further development.
Default tax system based on corporate rate
- The default tax system for a CCIV that does not satisfy the relevant criteria will apply the corporate tax rate, but will not be able to distribute franking credits to members.
- Again, this is a key issue which will need to be developed, in particular the extent to which a failure to satisfy the relevant criteria at a particular sub-fund level can impact the tax treatment of other sub-funds.
Basic rollover relief for transition into an CCIV is provided
- It has been identified that the ability for existing funds to re-organize without a tax cost into the new regime will be critical to maintaining establishing the critical mass for funds which is necessary for its success, particularly those funds seeking to take advantage of the Asian Regional Funds Passport.
- The draft legislation provides for a basic form of rollover relief. It allows existing AMITs to transition into a sub-fund of a CCIV, based on the existing rollover relief for trust restructure.
- It is intended that it provides a limited form of relief from CGT events for the funds and investors.
- It does not contemplate on the relief being available to combine different pools of assets into a single sub-fund.
- Importantly, it also does not provide for adoption of the tax history of the AMIT by the sub-fund in the CCIV.