Investment manager regime – interim arrangements extended

The US accounting standard FIN 48 (FASB ASC 740-10) requires uncertain tax positions to be disclosed in the relevant accounts.  Ordinarily, the uncertainty of many of the Australian taxation provisions would have caused significant concerns for offshore fund managers required to prepare accounts in accordance with these standards, which may have discouraged foreign investment into Australia.

In order to provide certainty to such offshore fund managers investing in Australia, the Government previously announced that where a foreign managed fund had not lodged a tax return for the 2009-10 or prior income years in respect of certain investment income of the fund, the ATO would not be permitted to raise an assessment in respect of that income. These interim arrangements will now be extended to include the 2010-11 income year in order to provide further certainty in relation to the preparation of accounts for that financial year. 

Also as previously announced on 19 January 2011, the Government will amend the tax law to exempt income from relevant investments in a foreign managed fund where it is taken to have a permanent establishment because of an Australian intermediary that is a dependant agent, branch or subsidiary of a foreign fund.  The change is proposed to apply from the 2010-11 income year.

New Tax system for MITs

As previously announced on 8 April 2011, the Government will defer the start date for the new tax system for MITs to 1 July 2012 and make two minor (but important) changes to the new tax systems for MITs. 

First, the tax law will be amended to allow MITs to make amendments to their trust deeds to comply with the “clearly defined rights” requirement without triggering a trust resettlement. Secondly, the proposed de minimis rule allowing MITs to carry forward under and over distributions to the next income year (without adverse tax consequences) will be amended by replacing the alternative test of the de minimis threshold of a ‘prescribed dollar value per unit’ with a ‘0.4 of 1 per cent of net assets’ test.

Fund payment withholding tax

The trustee of a managed investment trust is required to withhold tax from ‘fund payments’ made to foreign resident investors.  A fund payment is so much of the net income of the trust for that year as is not a dividend, interest or a royalty (which are subject to their own withholding arrangements), a capital gain or capital loss from a CGT event that happens in relation to a CGT asset that is not taxable Australian property, and amounts that are not from an Australian source.

The withholding rate is 7.5% for fund payments in relation to the 2010-11 and later income years where the investor is resident in a limited list of information exchange countries and 30% for other foreign investors.

The Government has announced that the list of information exchange countries will be updated to include Belize, the Cayman Islands, the Commonwealth of the Bahamas, the Principality of Monaco, the Republic of San Marino, the Republic of Singapore, St Christopher and Nevis, and St Vincent and the Grenadines.

It is particularly pleasing to see Singapore added to this list given that Singapore has the third largest pool of funds under management in Asia and has the sixth largest globally.