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Federal Budget 2021-22: Finance and investment

Federal Budget 2021-22: Finance and investment

The Government has committed to the introduction of the Corporate Collective Investment Vehicles regime (CCIVs) regime, with a revised start date. There has also been a number of minor technical changes announced to the Taxation of Financial Arrangement (TOFA) rules relating to portfolio hedging and foreign currency.

Key take-aways
  • Corporate Collective Investment Vehicles (CCIV) regime to be finalised, with measure to commence from 1 July 2022.
  • Review of venture capital tax concession programs, including the venture Capital Limited Partnerships (VCLPs); the Early Stage Venture Capital Limited Partnerships (ESVCLPs); the Australian Venture Capital Fund of Funds (AFOFs); and Investments made directly by foreign residents registered under Pt 3 of the Venture Capital Act 2002.
  • Minor technical amendments to Taxation of Financial Arrangements (TOFA) regime, which will facilitate access to the hedging rules for portfolio hedging.

Corporate Collective Investment Vehicles (CCIVs)

The Government intends to finalise the Corporate Collective Investment Vehicles (CCIV) regime which was first announced in the 2016–17 budget.

Currently, collective investment in Australia is managed through unit trust structures (managed investment trusts). The CCIV regime will allow a similar flow-through treatment for investors utilising a corporate investment vehicle.

There has been significant growth in the funds management space in the middle market. The CCIV regime will provide fund managers with an alternative to using a unit trust structure, whereby a corporate vehicle may be more attractive to non-resident investors who may be more familiar with corporate-type flow through vehicles and not as familiar with trusts. Pitcher Partners welcomes this development and the potential positive impact that this may have for fund managers in the middle market.

The measures are to commence from 1 July 2022. Exposure draft legislation has previously been released to the public and Pitcher Partners has made a number of submissions on the draft legislation. The extended timeframe should therefore provide the Government with sufficient time to consult on many of the issues raised and also allow businesses to familiarise themselves with the new regime before implementation.

While the 2016-17 budget announced a Limited Partnership Collective Investment Vehicle (LPCIV) alongside the CCIV, the current announcement is silent as to whether the LPCIV regime will also be revived to proceed and commence from 1 July 2022.

Review of venture capital tax concessions

The Government will undertake a review of the venture capital tax concession programs. The concessions include the venture Capital Limited Partnerships (VCLPs); the Early Stage Venture Capital Limited Partnerships (ESVCLPs); the Australian Venture Capital Fund of Funds (AFOFs); and Investments made directly by foreign residents registered under Pt 3 of the Venture Capital Act 2002.

Broadly, these measures have been largely unsuccessful in being utilised in the middle market, mainly due to the complexity of meeting the requirements to establish these investment vehicles as compared to operating venture capital through a managed investment trust.

As outlined above, Pitcher Partners welcomes the extension of the collective investment vehicle regime to all forms of LPCIVs. Properly allowing limited partnerships to be used for the purposes of all types of collective investment would greatly enhance the overall use of these vehicles and would likely result in a better transition of fund management businesses to VCLPs and ESVCLPs over time.

Taxation of Financial Arrangements (TOFA)

The Government has also announced minor technical amendments to the TOFA regime, which will facilitate access to the hedging rules for portfolio hedging. These amendments should address technical deficiencies in the current TOFA regime that have not kept up to date with changes in hedging that have occurred since the move from accounting standard AASB 139 to AASB 9. These amendments should therefore allow taxpayers to defer the recognition of unrealised foreign exchange gains and losses in respect of certain hedged portfolios of investments.

We note that many taxpayers in the middle market have generally not sought to access the tax hedging rules, due to the significant cost of complying with the record-keeping requirements for hedging financial arrangements and the requirement to compile appropriate audited financial statements. These costs remain a significant impediment for many taxpayers in accessing the hedging election under TOFA. Pitcher Partners will continue to advocate for simplification of these rules to enable taxpayers the ability to access these provisions.

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This content is general commentary only and does not constitute advice. Before making any decision or taking any action in relation to the content, you should consult your professional advisor. To the maximum extent permitted by law, neither Pitcher Partners or its affiliated entities, nor any of our employees will be liable for any loss, damage, liability or claim whatsoever suffered or incurred arising directly or indirectly out of the use or reliance on the material contained in this content. Pitcher Partners is an association of independent firms. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the members of which are separate and independent legal entities. Liability limited by a scheme approved under professional standards legislation.

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