The Government [on Thur 12.3.2015] released draft legislation to implement Element 3 of the Investment Manager Regime (IMR) reforms.
The IMR reforms remove tax impediments to investing in Australia in order to attract foreign investment to Australia and promote the use of Australian fund managers.
These draft amendments would extend the IMR concession to cover investments in Australian assets (excluding real property) that are of a portfolio nature and broaden the “widely held” test. Foreign entities will be eligible for the IMR concession if they directly invest in Australia or invest via an Australian fund manager.
These amendments would also simplify the operation of the existing regime and make technical changes to ensure that some entities are not inadvertently disadvantaged or excluded.
COMMENTS are due by 9 April 2015.
[Copy of the Treasury summary] [LTN 48, 12/3/15] [IT 12/3/15]
Extract from Draft Legislation
1 Subdivision 842-I
Repeal the Subdivision, substitute:
Subdivision 842-I—Investment manager regime
Guide to Subdivision 842-I
842-200 What this Subdivision is about
This Subdivision sets out rules about the taxation of some foreign residents (known as IMR entities) that invest into or through Australia.
Income and capital gains from IMR financial arrangements are not subject to Australian income tax. Deductions and capital losses from IMR financial arrangements are disregarded for the purposes of this Act.
Extract from the draft Explanatory Memorandum
Context of amendments
1.3 In 2008, the Government established the Australian Financial Centre Forum as a Government and industry partnership to examine ways to position Australia as a leading regional financial services centre. In November 2009, the Forum provided its report to the Government. A copy of the report is available on the Forum’s website (http://www.afcf.treasury.gov.au).
1.4 The Johnson Report noted that features of Australia’s tax system could act as an impediment to certain cross-border activities — including certain investments made by foreign investors into or through Australia. The introduction of an IMR to provide specific exemptions from Australian income tax for particular investments of foreign investors was proposed as a means of removing such impediments.
1.5 In August 2011, the Board of Taxation (BOT) made a number of recommendations in respect of the design of an IMR in its report, ‘Review of an Investment Manager Regime as it relates to foreign managed funds: a report to the Assistant Treasurer’. The BOT recommended that an exemption style IMR be introduced that would apply to portfolio level investments made into Australia, as well as to certain investments made through Australia that were subject to Australian tax because of the use of Australian based intermediaries or fund managers. A key recommendation of the BOT was that the IMR should only apply to the investments of foreign funds that are genuinely widely held. A copy of this report is available on the BOT’s website (http://www.taxboard.gov.au).
1.6 Following the release of the BOT’s report, the Government announced on 16 December 2011 that it would address the uncertainty faced by foreign investors with respect to aspects of Australia’s tax laws when making passive investments into Australian assets and foreign assets.
1.7 There are three elements to the IMR reforms.
- Element 1 was enacted by the Tax Laws Amendment (Investment Manager Regime) Act 2012 (the previous IMR Act). Element 1 was designed to mitigate the consequences of United States of America (US) accounting standard Financial Interpretation Number 48 by clarifying the tax treatment of past transactions of foreign funds. These amendments are contained in the Income Tax (Transitional Provisions) Act 1997 (IT(TP)A 1997).
- Element 2 was also enacted by the previous IMR Act. Element 2 created a new Subdivision 842-I to provide concessional income tax treatment to foreign investors on their share of certain returns or gains from investments of a portfolio nature (membership interests of less than 10 per cent of the total) in assets through Australia by widely held foreign funds.
- This Bill implements the final stage of the IMR reforms by extending the concession to cover investments in Australian assets that are of a portfolio nature. These amendments also remove the portfolio restriction in respect of investments in foreign assets that are made through Australia. The amendments also make significant changes to the criteria that determine when a foreign fund is widely held and simplify the legislative mechanism for providing the IMR concession.
1.8 The IMR regime is designed to place individual foreign investors that invest into Australia through a foreign fund in the same tax position in relation to disposal gains and disposal losses they would have typically been had they made their share of the fund’s investments directly (rather than through the fund). The regime is also designed to ensure that when a foreign investor invests through an independent Australian fund manager it will be in the same position, in relation to disposal gains and losses, as if it had invested directly.
1.9 These changes are expected to encourage greater foreign investment to Australia and allow Australian fund managers to actively market their financial services globally, thereby promoting Australia as a regional financial services centre.