Investment Manager Regime - Interim Arrangements
Foreign managed funds and their investors will have more certainty for the 2010-11 income year, following an announcement to extend the Investment Manager Regime (IMR) arrangements.
The Government will introduce amendments to the income tax laws to prevent the Australian Taxation Office from raising assessments for certain investment income of foreign managed funds for the 2010-11 income year, where the fund has never lodged an Australian tax return.
These funds are an important source of mobile capital and providing this tax certainty will enable them to comply with US reporting requirements and minimise the risk of them withdrawing from investing in Australia.
This measure extends the arrangements announced on 17 December 2010, which applied to the 2009-10 and prior income years.
"Tonight's announcement will provide tax certainty for foreign managed funds and their investors, which invest around $57 billion in Australia, for the 2010-11 income year," Assistant Treasurer Bill Shorten said.
The Board of Taxation is currently examining the design of an investment manager regime (IMR) as part of its review of the tax treatment of collective investment vehicles (CIVs).
"To address the issue of the ongoing tax treatment of these investments, I have asked the Board of Taxation to report to me on an investment manager regime as it relates to foreign managed funds by the end of the third quarter of this year," Mr Shorten said.
Extending the previously announced measure will allow the Government to consider the Board's report prior to making a final decision on the tax treatment of this investment.
The Board will continue to progress other aspects of an IMR as part of its CIV review, with a view to reporting to Government by 31 December 2011.
The Assistant Treasurer's media release of 17 December 2010 (Media Release No. 27 of 2010) set out the following guidance on the meanings of 'foreign managed fund' and 'relevant investment income'.
Foreign managed fund
A foreign managed fund, broadly, has the following features:
- not an Australian tax resident;
- widely held (and not closely held);
- undertakes passive investment; and
- does not carry on or control a trading business in Australia.
While the specific definition of foreign managed fund will be developed in consultation with industry stakeholders, aspects of the proposed definition are already features of the law, for example the managed investment trust rules already contain widely held and no-trading requirements.
Relevant investment income
The amendments cover the income, gains and losses arising from the following investments by foreign managed funds:
- Portfolio interests in companies (including companies listed on the Australian Securities Exchange), portfolio interests in other entities (including units in a unit trust) and bonds, except to the extent the amount gives rise to a withholding tax liability; and
- Financial arrangements (for example, derivatives) and foreign exchange transactions, except to the extent they are in respect of an underlying interest that is otherwise taxable (such as taxable Australian property).