IMPROVING AUSTRALIA’S FINANCIAL SERVICES TAXATION REGIME

The Turnbull Government is committed to ensuring our policy settings promote Australia as a regional financial centre and to improving the ability of the financial sector to grow and export their services.

Industry has identified, however, some technical issues with the practical operation of the Investment Manager Regime (IMR) and the new tax system for managed investment trusts (MITs). The Government has actively engaged with the industry on these issues and is now responding to their concerns to clarify the operation of some aspects of the law. The Government welcomes this collaboration with industry.

The Government is clarifying that when a foreign investor invests in Australia through a foreign fund or an independent Australian fund manager it will be in the same tax position as if it had invested directly. This outcome was intended when the Government implemented the final element of the IMR in 2015.

The IMR reforms attract foreign investment to Australia and promote the use of Australian fund managers by removing tax impediments to investing in Australia.

Subject to meeting the appropriate tests, foreign funds that invest via an Australian fund manager are eligible to access IMR concessions in relation to disposal gains and losses, and can disregard certain Australian income tax consequences.

The Government is committed to implementing an effective IMR whilst maintaining the integrity of our residency rules. The Government will therefore consult on whether a legislative amendment is required to ensure that the engagement of an Australian independent fund manager will not cause a fund that is legitimately established and controlled offshore to be an Australian resident. Any legislative amendment would be retrospective to apply from the start of the IMR regime in 2015.

The Government is taking action to ensure that the new tax system for MITs, which was enacted in 2016, operates as intended. The new tax system was designed to increase certainty, allow greater flexibility and reduce compliance costs for MITs and to enhance the competitiveness of Australia’s funds management industry.

These clarifications will remove some barriers to entities seeking to opt into the regime and will clarify the operation of the law.  Most of these changes are technical in nature and seek to clarify current industry practice (see Attachment).