ALP courts fund managers via withholding tax

The Federal Opposition has moved to gain favour with the funds management industry, flagging changes to the tax regime affecting foreign investors in Australian managed funds.

The shadow treasurer, Wayne Swan, used an address to the Association of Superannuation Funds of Australia this week to canvass the change, arguing Australia’s headline rate of withholding tax for Australian managed funds for non-resident investors is 30 per cent, compared to 7 per cent in Japan, 10 per cent in Singapore and 15 per cent in the US and Hong Kong.

“In other words, the withholding tax arrangements in Australia make it harder for us to attract investment,” he said. “This is why we should examine options to make investment more attractive and grow our funds management business.

“In order to attract investment and reduce the regulatory burden, managed funds could have a lower headline withholding tax of 10 to 15 per cent, offset by the loss of debt deductibility,” Swan said.

He also pointed to possible changes to the tax treatment of foreign sources by superannuation funds.

“As superannuation funds continue to diversify their portfolios by investing in international equities and other financial instruments, they are increasingly being exposed to double taxation of earnings,” Swan said. “A foreign source income tax credit paid at a lower rate than the domestic imputation credit could help address the bias, allowing funds to further enmesh in the global economy, consistent with their long-term risk return objectives, while simultaneously improving real returns to fund members.”