Australia: Australian Government Announces Several Key Initiatives To Promote Australia As Leading Financial Services Centre

Australian Tax Update
Last Updated: 13 May 2010
Article by Jock McCormack and Anshu Maharaj

Australian Government announces several key initiatives to promote Australia as a leading Financial Services Centre, including funds management, encouraging and attracting foreign investors. These initiatives continue the Government's strong commitment to establishing Australia as a regional finance/funds management hub as demonstrated by recent withholding tax concessions, elective CGT treatment and Double Tax Treaty concessions/recognition.

Key highlights

The Australian Government handed down the 2010- 11 Federal Budget on 11 May 2010 with a real focus on developing Australia as a leading regional financial centre and to ensure that Australian managed funds remain competitive in global financial markets.

The key highlights from the 2010-11 Federal Budget and an announcement by the Assistant Treasurer on 7 May 2010 are summarised as follows and discussed in further detail below:

  • Introduction of a new dedicated tax system for Managed Investment Trusts (MITs).
  • Consultation on the introduction of an Investment Manager Regime (IMR).
  • Consultation process to streamline and update the Offshore Banking Unit (OBU) provisions.
  • Interest Withholding Tax (IWT) to be reduced on:
    • interest incurred by local subsidiaries and branches on borrowings from their overseas parents;
    • Australian-owned financial institutions borrowing from related parties overseas; and
    • any financial institution borrowing offshore retail deposits which they on-lend in Australia.
  • Further countries qualify for the concessionary withholding tax rate (currently 15% and 7.5% from 1 July 2010) on certain distributions from MITs.

New tax system for MITS

The Australian Government announced the introduction of a new dedicated tax system for MITs on 7 May 2010 as part of its 2010-11 Federal Budget based on the recommendations made by the Board of Taxation Report on MITs (August 2009).

The key features of the new MIT system which are to commence on 1 July 2011 are:

Elective Attribution Model

This elective attribution system of taxation for qualifying MITs will replace the current system of present entitlement to income. Pursuant to the current system, beneficiaries may be taxable on amounts that they are not entitled to receive and trustees may be taxed on capital gains that they have already distributed to beneficiaries.

This new attribution model will provide that beneficiaries will be taxed only on the taxable income that the trustee allocates to them on a fair and reasonable basis, consistent with the investor's entitlements and rights under the trust's constituent documents.

Further, qualifying MITs will be deemed to be fixed trusts for various taxation law purposes.

  • 'Unders and overs' distribution reform.
    There will be a carry-over facility to allow MITs to deal with 'over or under' distributions within a 5% cap. Pursuant to these new rules, trusts will not be required to re-issue statements for revised distributions where the adjustments fall within a 5% range (that is, the revised amount does not amount to more or less than 5% of the amount detailed in the issued statement).
  • Removal of double taxation.
    Double taxation can arise where the taxable income of a MIT differs from the amount distributed to beneficiaries due to timing or other reasons.
    This double taxation will be removed by allowing upward cost base adjustments to the capital gains tax cost base of a beneficiary's interest in the MIT in certain circumstances.
  • Abolishing the corporate unit trust provisions in Division 6B of the Income Tax Assessment Act 1936.
    The corporate unit trust provisions which are redundant since the introduction of the capital gains tax and thus will be abolished and replaced with an arm's length rule in the public trading trust provisions in Division 6C of the Income Tax Assessment Act 1936.
  • Other requirements regarding a 'widely held' test and the boundaries of the passive investment requirement are yet to be fully articulated.
  • Character retention of tax deferred income, capital gains (in legislative process), treaty recognition/benefits and broader 'flow through' treatment are expected to be more specifically dealt with in legislative amendments.

IMR Consultation

The Australian Government announced on 11 May 2010 its in principle support on the introduction of an IMR. An important element of the IMR is to ensure that non-residents investing in foreign assets will not face further Australian tax on their investments when using Australian fund managers.

As a first stage, the Australian Government has commenced a consultation process with the release of a Consultation Paper (Developing an Investment Manager Regime - Improving conduit income arrangements for managed funds). Submissions on this Consultation Paper are due by 22 June 2010.

This consultation is a result of the Australian Financial Centre Forum report (Johnson Report) which recommended the introduction of an IMR based on the following principles:

  • The IMR would have wide application, to both retail and wholesale funds and other areas of financial services beyond funds management, but would be confined to entities operating within the financial sector.
  • For non-resident investors using an independent resident investment adviser, fund manager, broker, exchange or agent:
    • investments in all foreign assets would be exempt from any tax liabilities in Australia; and
    • investments in Australian assets would for tax purposes be treated the same as if the investments were made directly by the non-resident without the use of any Australian intermediary.
  • For non-resident investors using a dependent intermediary acting at arm's length:
    • investments in all foreign assets would be exempt from any tax liabilities in Australia; and
    • investments in Australian assets would be treated as they are currently, subject to an agreed de minimis exemption to cater for global investment strategies that may include a nominal portion of Australian assets. Any Australian assets under this de minimis exemption would for tax purposes be treated the same as if the investments were made directly by the non-resident without the use of any Australian intermediary.
  • The location of central management and control of Australia for entities that are part of the regime will not of itself give rise to Australian tax residency of those entities.

OBU Consultation

The Australian Government also announced on 11 May 2010 it will commence a consultation process, which will begin with the release of a discussion paper covering options for:

  • streamlining the OBU application process;
  • addressing the issue of whether there is a 'choice' as to whether all OBU eligible activities have to be treated as OBU transactions; and
  • ensuring timely and efficient updated and review (and potential broadening) of 'eligible OBU activities'.

In this regard, the Australian Government has given its in principle support in respect of the following recommendations made by the Australian Financial Centre Forum report:

  • The Government, in its response to the Forum's Report, include a statement of support for, and commitment to, the OBU regime. Such a statement could also refer to arrangements to ensure the ongoing competiveness of OBUs.
  • The tax uncertainty about 'choice' be removed, if necessary by legislation.
    Division 9A of the Income Tax Assessment Act 1936, which details the list of eligible OBU activities, be updated and regularly reviewed. The Forum's preferred option is for much of the detail in this Division to be replaced with Regulations. The Regulations would contain an updated list of eligible OBU activities, developed with advice from the Treasury and the Australian Taxation Office, and following consultation with industry. These Regulations would be updated periodically on advice from the proposed Financial Centre Task Force, which would also make periodic recommendations on any other changes to the OBU regime necessary to ensure that it remained internationally competitive.
  • A streamlined process for vetting new OBU applications be put in place:
    • with a requirement that an application be approved or denied within six months of its receipt, subject to all the appropriate application material being lodged;
    • with revised administrative changes for the 'other company' category. The Forum proposes that the guidelines 4(q), 4 (r) and 4(s) in the Income Tax Assessment (Determination of Offshore Banking Activities) Guidelines 1999 be satisfied by an external auditor (or equivalent) verification; and
    • that these new arrangements be reviewed by Treasury 18 months after their adoption to ensure they are working effectively.

IWT Reduction

The Australian Government will phase down the IWT paid on a number of offshore borrowings. The current and proposed IWT rates and exemptions as announced are summarised below:

Type of Borrowing Current IWT rates Proposed from 2013-14 Proposed from 2014-15
Local subsidiaries borrow from overseas parents 10% 7.5% 5%*
Financial institutions
Financial institution borrows from a foreign financial institution (where not exempt under a tax treaty) 10% 7.5% 5%*
Foreign bank branch borrows from overseas head office 5% 2.5% Exempt
Financial institution borrows from offshore retail deposits (proceeds used and traced to Australian operations) 10% 7.5% 5%*
Financial institution borrows through a publicly offered debenture issue, non-equity share or syndicated loan Exempt Exempt Exempt
Offshore banking unit (borrows and on-lends offshore) Exempt Exempt Exempt
Financial institution borrows from non-resident retail deposits held in Australia 10% 10% 10%

However, as an integrity measure, the IWT phase down will not apply to interest paid on non-resident retail deposits held in Australia.

Further countries qualify for concessionary withholding rate on distributions from MITS

Currently, there is a concessionary withholding rate (15% which will decrease to 7.5% from 1 July 2010) in respect of certain distributions (such as distributions of Australian source net income of the trust but excluding interest, dividends, royalties and a capital gain or loss from an asset that is not taxable Australian property) from MITs to beneficiaries resident in a country with which Australia has a Tax Exchange Information Agreement (TEIA). These countries are currently listed in regulation 44E of the Taxation Administration Act 1953.

The Australian Government has announced that regulation 44E will be updated to include:

  • Antigua and Barbuda;
  • The British Virgin Islands;
  • The Isle of Man; and
  • Jersey.

Many of our other TEIA countries have not been gazetted as such at this stage and thus there appears to be a considerable time delay from entering into the relevant agreement and the time it becomes operative for purposes of the withholding tax concession.

Other aspects of Government's promotion of Australia as a Financial Services Centre

The Government has warmly embraced other aspects of the Johnson Report including the possible provision of a broader range of 'flow through' vehicles and support of Islamic financial products and we expect to see further action on these and related matters in the coming months.

© DLA Phillips Fox

DLA Phillips Fox is one of the largest legal firms in Australasia and a member of DLA Piper Group, an alliance of independent legal practices. It is a separate and distinct legal entity. For more information visit

This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.