Foreign fund managers to gain local tax exemption
Foreign funds and investment managers will be exempted from paying tax on the disposal of portfolio interests in Australian assets under the third stage of the Investment Manager Regime (IMR).
The proposal is part of the updated draft legislation for the third element of the IMR released by the Federal Treasurer Chris Bowen.
According to the explanatory memorandum for the draft legislation and statements on the Treasury website, the exposure draft legislation will allow gains by foreign funds from the disposal of portfolio interests in Australian assets to be largely exempt from Australian tax.
However for the exemption to apply the foreign funds must have “a permanent establishment in Australia solely as a result of engaging an Australian intermediary”.
Treasury said the legislation was “designed to address uncertainty faced by foreign funds with respect to aspects of Australian tax laws when making passive investments into Australian assets”.
The first two parts of the IMR regime were legislated in 2012 and focused on providing certainty about prior income years and the treatment of conduit income.
Bowen said this exposure draft is built on industry consultation, including submissions received on an earlier exposure draft. A six-week consultation and submission period for this draft is due to close on 13 September.
The IMR regime is a result of recommendations from the Johnson Report, which highlighted concerns that the Australian tax system could impede some investment activity into Australia, and through Australia using Australian financial service intermediaries.
The Federal Government provided in-principle support for the introduction of the IMR as part of the 2010-11 Budget and has passed the first two elements of the IMR. The first element limited the assessment for tax purposes of certain investment income earned by particular foreign managed funds during the 2010/11 and earlier income years.
The second element ensures that income from a foreign managed fund engaged with an Australian-based financial services intermediary for portfolio investments would be exempt from Australian tax if the only reason it was taxable was because the fund engaged the financial services intermediary.
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