Australia Tax Alert - 21 December 2012
Government update on status of Investment Manager Regime
By Peter Madden, Vik Khanna, Mark Hadassin, Alyson Rodi and David Watkins
On 21 December 2012, the Australian government made a further announcement on the Investment Manager Regime (IMR). The announcement reinforces the government’s commitment to the IMR, and the broader goal of promoting Australia as a regional financial services center.
Under the various elements of the IMR, eligible income, gains or losses from portfolio interests or financial arrangements of an IMR foreign fund will be excluded from the fund's taxable income (and that of its nonresident investors).
In the announcement, the government confirmed its intention to introduce legislation for element 3 of the IMR into Parliament in the first half of 2013. IMR3 should apply retroactively as from 1 July 2011. The announcement also proposes changes to elements 1 and 2 of the IMR, which became enacted law in 2012. Element 1 is also referred to as the “FIN 48” measure and broadly provides an exemption for all eligible income and gains of IMR foreign funds for periods up to 30 June 2011.
A key element of qualifying as an IMR foreign fund is that the fund meets the “widely held” and “concentration” tests. Following further industry consultation, the government acknowledges that the tests as currently defined in respect of elements 1 and 2 “inappropriately exclude … some funds which use common structures such as “feeder funds” that have large numbers of underlying members.” The government announced that, in respect of elements 1 and 2 of the IMR, it will “make legislative amendments to allow funds to trace through to underlying investors for the purposes of applying the widely held and concentration tests.” This is a very positive development and will assist funds in qualifying as IMR foreign funds.
The announcement stated that “Element 1 provides certainty for funds that may be impacted by the application of US accounting rules to managed funds, commonly known as “FIN48,” by excluding income from certain entitlements of a foreign fund where the fund has not lodged a tax return for the 2010-11 and prior income years.”
At this stage, no draft legislation has been released for the proposed changes to IMR1 and IMR2, or for IMR3.