The Australian Government has moved to clarify the tax treatment of foreign investors, following concerns over the practical operation of the Investment Manager Regime (IMR) and the new tax system for managed investment trusts (MITs).
The aim of the IMR is to attract foreign investment to Australia and the promote the use of Australian fund managers, by removing tax impediments to investing in the country. Subject to meeting the appropriate tests, foreign funds that invest via an Australian fund manager are eligible to access IMR concessions in relation to disposal gains and losses, and can disregard certain Australian income tax consequences.
The Government said it is now clarifying that when a foreign investor invests in Australia through a foreign fund or through an independent Australian fund manager, the investor will be in the same tax position as if they had invested directly.
The Government will consult on whether a legislative amendment is required to ensure that the engagement of an Australian independent fund manager will not cause a fund that is legitimately established and controlled offshore to be deemed an Australian resident. Any legislative amendment would be retrospective to apply from the start of the IMR regime in 2015.
In 2016, the Government introduced a new tax system for MITs.
The Government said that the industry has identified potential differences in the capital gains tax (CGT) outcomes for investors in MITs and Attributions MITs (AMITs) may unnecessarily be preventing some MITs from opting in and becoming AMITs. It will clarify that investors in MITs will be required to adjust the cost base of their units in the MIT when it distributes an amount claimed to be non-assessable (the CGT concession amount).
This will mean that investors in MITs will no longer be able to exclude the distributions they receive in relation to these non-assessable amounts in recalculating their cost base, and CFT event E4 gains. E4 gains arise where an investor receives a non-assessable payment from a unit trust.
The Government will also move to ensure that a MIT with an income year starting on a date other than July 1 can opt into the AMIT regime from its first full income year starting on or after July 1, 2015. It will amend the meaning of fund payment to clarify that the fund payment for both MITs and AMITs should be calculated on taxable Australian property net capital gains only.
In addition, the Government will amend the MIT withholding provisions to clarify that they apply to the amount of the fund payment that is attributed to the taxpayer by an AMIT, and it will amend the meaning of an AMIT so that single unitholder widely held entities can access the AMIT regime. It will also amend the rounding adjustment and trustee shortfall tax provisions in the income tax law, to ensure that the discount capital gains are properly taken into account under the AMIT unders and overs regime.
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