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November 29, 2021
2021-2153

Australia introduces proposed Corporate Collective Investment Vehicle tax and regulatory laws

On 25 November 2021, the Australian Treasurer introduced a Bill into Parliament to implement the tax and regulatory laws for the proposed Australian Corporate Collective Investment Vehicle (CCIV) regime, in Corporate Collective Investment Vehicle Framework and Other Measures Bill 2021. 

The CCIV regime is intended to provide Australian funds managers with an internationally recognizable collective investment vehicle (new type of a company limited by shares) with flow-through tax treatment. The CCIV regime is also intended to be attractive to foreign investors that are more familiar with corporate structures globally, rather than Australia’s managed investment trust (MIT) and attribution managed investment trust (AMIT) structures, and expand opportunities to export Australia’s funds management expertise.

In addition, the CCIV is seen as critical to the success of the Asian Region Fund Passport (ARFP) which allows eligible funds to be marketed across ARFP member countries, with limited extra regulatory requirements, and provisions relating to the ARFP regime will be extended to cover CCIVs. 

The CCIV tax framework provides flow-through tax treatment for investors by leveraging the existing trust taxation framework and AMIT flow-through regime. 

The CCIV regime will be operational from 1 July 2022. This means there will be limited time to review the final form of the law and, for fund managers, to design CCIV products. In addition, for fund managers, custodians and administrators, there will be limited time to develop policies and systems to manage the regulatory and taxation requirements, alongside MIT products. 

Based on an initial review, there are limited changes in the Bills compared to the final exposure drafts issued for consultation in August 2021, notwithstanding submissions by EY and others. 

Important differences identified for the tax rules, including in response to submissions, are as follows:

  • Where the trust taxation rules under Division 6 of the Income Tax Assessment Act 1936 apply to CCIV sub-funds that do not meet the widely-held tests required to qualify for CCIV tax treatment in a year:
    • The determination of “present entitlement” in the deeming rule will now include dividends declared during, or within three months after, the income year, which will assist in eliminating tax to CCIVs at 45%. However, there is still a real risk of taxation at 45% for CCIVs due to the use of “present entitlement” concepts.
    • Rules to clarify how to determine the accounting income of CCIV sub-fund trusts which depend on whether a CCIV is a retail or wholesale CCIV.
  • The addition of further explanations in the explanatory materials on interaction issues with Australia’s tax treaties, however no changes in law have been made, with CCIVs being deemed to be trusts for the purposes of withholding tax and Double Tax Agreements. Importantly, various issues with Australia’s tax treaties for managed funds and MITs have also been raised with Treasury during recent consultations on expanding Australia’s tax treaty network. 

The Australian Taxation Office has advised that it is considering what support will be required as it implements the CCIV measures, including matters requiring public guidance. 

Certain refinements have been made in relation to the regulatory regime in response to submissions, although wholesale CCIVs remain subject to more regulatory requirements than wholesale managed investment regimes including: (i) additional directors’ duties that go beyond general trust law; (ii) a requirement to have a members’ meeting for the replacement of a corporate director; and (iii) a requirement for a corporate director of any CCIV to be a public company authorized to operate CCIVs.

For background on the CCIV regime, see EY Global Tax Alert, Australian Treasury releases revised draft law on Corporate Collective Investment Vehicle regime, dated 31 August 2021.

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For additional information with respect to this Alert, please contact the following:

Ernst & Young (Australia), Sydney

Ernst & Young LLP (United States), Australia Tax Desk, New York

Ernst & Young LLP (United Kingdom), Australia Tax Desk, London

 

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