This article was written by Stuart Broadfoot
The Federal Government has announced some initial incremental measures in an attempt to attract global business to invest in and relocate to Australia and capitalise on the strong Australian economic recovery, along with the promise of further reviews.
Commitment to implement corporate collective investment vehicle by 1 July 2022
- The Government has committed to a start date for a new corporate collective investment vehicle of 1 July 2022. First announced in the 2016-17 Budget, this measure is intended to encourage investment into Australian funds.
- The new CCIV is intended to allow the use of a corporate structure (with the benefits of limited liability) for investment vehicles, whilst subjecting them to flow-through tax treatment so that any Australian tax is paid at the investor level (rather than at the fund level).
- This fund structure is more familiar to overseas investors, who are familiar with similar structures used in major fund vehicles internationally (for example, US limited liability companies).
Changes to TOFA rules for hedging and foreign exchange transactions from 1 July 2022
- These technical amendments to the Taxation of Financial Arrangement (TOFA) rules will allow access to the hedging rules on a portfolio hedging basis. This is intended to address unnecessary complexity for foreign investors and tax mismatches for domestic investors investing in funds that undertake hedging.
- Other technical amendments will be made to ensure taxpayers are not subject to unrealised taxation on foreign exchange gains and losses unless elected.
Restoring licensing relief to foreign financial service providers
- The Government will consult on options to restore the previous Australian financial regulatory relief for foreign financial service providers licensed overseas providing services to wholesale clients and professional investors in Australia.
- They will also look to establish a fast-track licensing process for those foreign financial services providers who wish to have operations in Australia that are beyond those covered by the previous exemptions, to allow more providers to enter into the Australian market.
- King & Wood Mallesons had previously issued an alert on the changes to the foreign financial service providers licensing regime which are now looking to be reversed.
Reviews into venture capital tax concessions and residency of managed vehicles
- The Government has committed to a review of the venture capital tax concessions to ensure that they are offering the correct incentives for investment into early stage Australian start-ups.
- In conjunction with the consultation on changes in corporate tax residency announced in last year’s Federal Budget, the Government has extended the consultation on tax residency to include the residency of trusts and corporate limited partnerships. Whilst details are slim, it is hoped that this will include examining how the investment management regime interacts with tax residency for fund managers.
Also of potential relevance to the Funds industry are the announcement of measures to support early engagement with the Australian Taxation Office by foreign investors, discussed in further detail in the International section.