- What is a CIV?
- What are the proposed CIV options?
- What are the potential benefits of CIVs?
- How will this impact existing structures?
- Can I convert an existing MIS to a CIV?
1. What is a CIV?
CIVs allow investors to pool their funds and have them managed by a professional fund manager. Unlike Australian unit trusts, corporate CIVs and limited partnership CIVs are well understood by foreign investors.
2. What are the proposed CIV options?
Two CIV options are proposed to be introduced:
Corporate CIV (proposed start 1 July 2017)
This option provides the ability to invest through a company structure, whilst providing flow-through taxation to investors (as if they invested directly). This option is suited to most investment products, particularly those offered to retail investors.
Limited Partnership CIV (proposed start 1 July 2018)
This option provides for limited liability, with flow-through taxation to investors (as if they invested directly). It is best suited to wholesale investment, including overseas pension funds and infrastructure. Currently, Australian limited partnerships are generally taxed as companies.
3. What are the potential benefits of CIVs?
- Globally recognised fund structures encouraging foreign investment into Australia
- Single vehicle for both domestic and foreign investors
- Economies of scale – this means lower administrative and operational costs that can be passed onto investors as lower fees and expenses
- Structural flexibility – the possibility of having multiple sub-funds under the one umbrella
- The ability for Australian funds to become more exportable – including under the Asia Region Funds Passport.
4. How will this impact existing structures?
The CIV regime is intended to operate alongside the existing MIS / MIT regime, with eligibility criteria similar to MITs (i.e. licensed manager, widely-held, passive investments).
We see both regimes operating concurrently for the foreseeable future. However, a single investment vehicle for both domestic and foreign investors, is an attractive proposition for fund managers.
5. Can I convert an existing MIS to a CIV?
Specific legislation will be required. Any conversion regime will need to be practical, and without unduly onerous pre-conditions to encourage industry to take up the new regime.
We expect that tax transitional arrangements – such as CGT rollover relief - will also need to be introduced for conversions.
The duty implications of establishing a CIV or converting an existing MIS to a CIV will need consideration.