Australia releases Investment Manager Regime

4 February 2014
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Global Tax Alert
Australia releases Investment
Manager Regime Final Element 3
Exposure Draft with submissions
due 14 February 2014
On 31 January 2014, the Australian Government released the third Exposure Draft
(ED) law to implement the final stage on an Australian Investment Manager regime
(IMR 3) for foreign widely held funds.1
The third ED has substantially been reworked from the first and second versions on
IMR 3 issued on 4 April 2013 and 31 July 2013 respectively.2 IMR 3 is proposed to
apply from the 2011-2012 income year.
Broadly, the purpose of IMR 3 is to exempt from Australian income tax gains or
losses made by an entity (that meets the definition of an “IMR foreign fund”) in
relation to portfolio interests in equities and interests in other financial interests
(e.g., certain debts).
Several changes have been made in this third ED, including:
• The different treatments of an “IMR foreign fund” depending on whether it is a
corporate tax entity trust or partnerships have been removed.
• There is now just one rule which defines if an entity is an “IMR foreign fund” and
broadly states that it will be an entity at all times during the income year that:
(i) is not an Australian resident or a resident trust estate (ii) is a resident of an
information exchange country at all times during the income year (iii) does not
carry on or control a trading business (as defined) in Australia and (iv) any of the
following conditions are satisfied:
1.
he entity is an “IMR widely held entity”: this definition has expanded and
T
includes certain listed entities, life insurance companies, pension funds
and sovereign wealth funds. This is a positive change which removes the
requirements for qualifying IMR widely held entities to trace through their
ownership structure. However, for non-IMR widely held entities, such as
hedge funds, some degree of tracing through
its ownership structure will still be required to
determine if these entities are relevantly widely
held.
2.
he entity satisfies the “IMR widely held test”:
T
an entity will satisfy the IMR widely held test if
it has at least 25 members and does not breach
the closely held requirements.
In determining the members, tracing is required
through interposed entities to the individual
members. However, there are certain tracing
concessions and counting rules where an IMR
widely held entity or a collective investment
vehicle (as defined) with a wide membership
has an interest in the IMR foreign fund.
An IMR foreign fund will not satisfy the “widely
held test” if it is considered “closely held”. An
entity will be closely held if there is a member
of the entity with a total participation interest
of 10% or more in it, or, 10 or fewer members
of the entity have a total participation interest
of 50% or more in it. This should be considered
in light of fund managers that are individuals.
A welcome change from the previous ED was
the removal of the condition that the fund
manager’s participation interest in the entity
had to be less than 20%, otherwise the entity
would be considered to be closely held.
There continues to be concessions to
the “widely held test” for unpreventable
circumstances of short duration of 30 days
where the entity may breach the “widely held
test” as well as for the start-up and wind down
years.
3.
he entity is an entity of a kind specified in the
T
regulations.
• Legislated requirements for an IMR foreign fund to
provide notifications of IMR status to beneficiaries
and partners have also been removed. However,
the annual reporting requirement remains which
requires an entity that is responsible for the day-today management of an IMR foreign fund to provide
a statement to the Commissioner no later than three
months after the end of an income year.
In addition, the third ED on IMR 3 also redrafts the IMR
2 concession (known as the conduit income measure)
although the substance and effect of the conduit
measure remains largely unchanged.
The third ED does not have any accompanying
explanatory memorandum and therefore further
detailed analysis will be required and any new and
/ or remaining issues are likely to be discussed in
submissions on IMR 3 ED, which are due by 14
February 2014. Some of the outstanding issues that
still exist include:
• A widely held foreign fund must still meet the
requirement that it is a resident of an information
exchange country. Some foreign funds may be
domiciled in an information exchange country but
may not be considered to be a resident of that
country if they are not liable to tax in that country.
• Interests held by endowment funds may not be
recognized as a “participation interest” and may
cause otherwise widely held entities to fail the
“widely held test.”
• 10% individual interests in the closely held
requirements and not satisfying the “widely held
test.”
It appears that this tight submission deadline is to allow
for a potential introduction in the autumn sittings of
Parliament, scheduled to take place between March –
June 2014.
Endnotes
1. Click here for the ED law version 3 on the Treasury website.
2 For details on the first ED on IMR, see EY Global Tax Alert, Australian Investment Manager Regime Exposure
Draft law released: Submissions due 26 April 2013, issued 3 April 2013.
2
Global Tax Alert
For additional information with respect to this Alert, please contact the following:
Ernst & Young (Australia), Brisbane
• Michael Chang +61 7 3011 3126
[email protected]
Ernst & Young (Australia), Melbourne
• Peter J. Janetzki +61 3 8650 7525
• Dale Judd
+61 3 9655 2769
[email protected]
[email protected]
Ernst & Young (Australia), Sydney
• Daryn Moore +61 2 9248 5538 • Antoinette Elias
+61 2 8295 6251
[email protected]
[email protected]
Ernst & Young LLP, Australian Tax Desk, New York
• Michael Anderson +1 212 773 5280 [email protected]
Global Tax Alert
3
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