After much anticipation, Australia's Federal Treasurer Scott
Morrison handed down his first Federal Budget on May 3, 2016. The
Budget unveiled two significant tax changes designed to attract
capital from overseas investors.
New collective investment vehicles and Asia Region Funds
The Federal Budget introduces two new collective investment
vehicles (CIVs), a corporate CIV from July 1, 2017 and a limited
partnership CIV from July 1, 2018 for which a new tax and
regulatory framework will be required. Because these vehicles are
internationally recognised and easy to use structures it is
anticipated that they will make Australian domiciled investment
vehicles a more attractive place for overseas investors to invest.
In addition, these new investment structures can support the new
Asia Region Funds Passport regime - an APEC initiative, the pilot
program for which is scheduled to commence in 2017. These new CIV
structures are more familiar to many non-resident investors than
the unit trust structures that operate in Australia.
The Australian Federal Government has been reviewing the tax
treatment of CIVs since May 2010, when the then Assistant Treasurer
and the then Minister for Financial Services, Superannuation and
Corporate Law announced that the Government would ask the Board of
Taxation (Board) to review the tax treatment of CIVs, including
whether a broader range of tax flow-through CIVs should be
The CIV changes in the Budget are based on the recommendations
made by the Board of Taxation in the final report it released on
June 4, 2015. It is anticipated that the new CIVs will be tax flow
through vehicles that will operate in a similar way to Australian
managed investment trusts. They will be required to meet similar
eligibility criteria, such as being widely held and engaging in
primarily passive investment.
These proposed new CIVs strengthen the international
competitiveness of Australia's funds industry, and accordingly
build on a key theme arising out of the final report of the
Financial System Inquiry into Australia's banking and financial
The Asia Region Funds Passport reached another important
milestone when on April 28, 2016 Australia, Japan, South Korea and
New Zealand signed the Memorandum of Cooperation (MOC) which
completes international negotiation of the passport arrangements
and is the culmination of over six years work. New Zealand,
Australia, Japan, Korea, the Philippines, Singapore and Thailand
have contributed expertise to developing the framework.
The MoC comes into effect on June 30, 2016 and any other
eligible economy that signs the MoC before then will be an original
participant in the passport. The MoC also ensures that any other
eligible APEC economies are able to participate in the passport
even after it comes into effect.
Participating economies have up to 18 months from June 30, 2016
to implement domestic arrangements. Activation of the passport will
occur as soon as any two participating economies implement the
arrangements under the MoC.
Asset backed financing – Islamic investment
The Federal Government in its Budget also pledged to
"enhance access to asset backed financing" by removing
key barriers to the use of asset backed financing arrangements
imposed by Australia's current tax laws. While the announcement
was not made with much fanfare, it may prove to be one of the most
significant tax changes in the Budget. It is anticipated that the
announcement may open the door to Islamic financing in Australia,
thereby allowing Australian borrowers to access a new financial
market to fund real estate and infrastructure projects.This tax
measure will apply from July 1, 2018."
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