Boost to Australian funds management industry as CCIVs legislation is passed

It has taken 13 years, but Australia now has a legislated framework for Corporate Collective Investment Vehicles (CCIVs). This should prove a valuable boost to the export of funds management and will help to encourage international investment into Australian funds by providing a structure that is more familiar to foreign investors.

The legislation, Corporate Collective Investment Vehicle Framework and Other Measures Bill 2021 passed through Parliament earlier this month, which means that a recommendation from the landmark Johnson report in 2009, Australia as a Financial Centre, has finally been implemented. That report was designed as a post-GFC means to boost Australia as a regional financial services hub.

The new regulatory and tax framework for CCIVs will commence from 1 July 2022 and is a welcome and overdue development. For many years, the Australian funds management industry has been hampered by the lack of an investment vehicle which is familiar to overseas investors.

The CCIV has been designed with the policy objective of increasing the competitiveness of the Australian funds management industry by broadening our suite of investment vehicles through the introduction of an internationally recognisable structure – a corporate vehicle – which is fiscally transparent and broadly equivalent to a Managed Investment Trust (AMIT).

The Financial Services Council estimates that only 5 percent of the funds currently managed in Australia come from offshore ($145bn out of $2.6trn), which gives an indication of the scope and potential for the export of Australian funds management.

KPMG believes many of the issues that have surrounded this initiative have been addressed and the tax framework has been significantly simplified in the final version. It now leverages existing trusts taxation framework by treating each sub-fund of a CCIV as a “deemed trust” which is taxed as an AMIT if it meets the eligibility criteria.

The legislation has produced a base framework for establishing viable CCIVs in the Australian market, and fund managers are now able to work towards a July commencement date.

It should be said that some outstanding tax and regulatory issues still need to be addressed.

Notably the legislation does not tackle the transition process for existing funds into CCIVs.  Without a process to convert an existing AMIT to a CCIV without creating a tax event, either for investors or at the level of the fund, the tax cost could be a significant impediment to transition and will be a barrier to achieving scale in the new regime. This issue is well understood by Treasury and is proposed to be addressed through post-implementation amendments.

The reliance on the concept of accounting profits (as opposed to distributable income/trust law income) in certain aspects of the legislation presents issues for non-AMIT sub-funds that will need to be considered further and resolved and an important tax issue that is not addressed is the interaction between double tax agreement withholding tax rates (on a legal form dividend) and the AMIT withholding rules that will treat a distribution from a CCIV as a deemed trust distribution.  Circumstances where the effective withholding rate under the AMIT rules exceeds the treaty dividend rate may prove problematic and will need to be addressed in future.

So, from a regulatory perspective, there remain some discrepancies between the requirements for a CCIV and those for an AMIT, meaning the CCIV does not start from a completely level playing field. But this is only the first instalment of the tax and regulatory measures. Overall, the legislation marks a significant development in the international competitiveness of Australia’s funds management industry. We welcome its introduction and remain optimistic around the potential start date of 1 July 2022.

Share

Add a comment