Tax Reform For Managed Funds - The Road Ahead

May 2014

Significant changes to the taxation of funds have been announced but not enacted over the past few years. The announcements have created tremendous uncertainty for fund managers managing both inbound and domestic investment vehicles.

Late last year, the Federal Government sought to provide some stability by clarifying the status of several proposed tax reform measures. Some proposals were scrapped and other key measures identified with a way forward.

The announcements provide an opportunity for the funds industry to focus on the major reforms that have now been prioritised by the Government.



The Government has committed to proceeding with the implementation of a full investment manager regime (IMR) and will likely amend the existing rules to allow more funds to access to the concessions provided under the IMR.

Broadly, the IMR:

  • prescribes the treatment of returns, gains, losses and deductions on certain investments of widely held foreign funds. The concessions contained in the IMR apply where the returns or gains would otherwise be assessable only because they are attributable to a permanent establishment in Australia which arises solely from the use of an Australian-based agent, manager or service provider
  • prescribes the taxation treatment of certain returns, gains, losses and deductions for 2010/11 and earlier income years of widely held foreign funds which have not lodged a tax return and have not had an assessment made of their income tax liability.


The Government is proceeding with introducing further changes to the taxation of managed investment trusts (MIT). These changes are intended to take effect from 1 July 2014. Aspects of the MIT taxation system have already been introduced, namely the making of an irrevocable election by eligible MITs for CGT treatment on certain assets and a reduced withholding tax rate of 15% for fund payments made to certain non-resident investors.

The anticipated changes include:

  • allowing an over or under distribution of net income that is not caused intentionally by the trustee to be carried forward, subject to certain integrity measures
  • introducing an arm’s length dealing rule in place of the existing corporate unit trust rules
  • allowing eligible MITs to use an “attribution method” of taxation in place of the present entitlement method.


The Government will not be proceeding with the introduction of foreign source anti-tax deferral (attribution) rules which had previously been contemplated. With every investment strategy involving offshore investments, it has been necessary over the recent past to consider the potential application of the proposed foreign investment fund (FAF) rules and potential changes to the controlled foreign company (CFC) rules to the investment strategy contemplated.

By confirming that the Government will not be pursuing FAF and CFC changes, investment managers reviewing offshore investments can concentrate on current CFC provisions with some assurance that the rules are unlikely to be materially altered in the immediate future.

The Government announcements late last year have provided some much needed relief by specificall dentifying the measures that they will and will not be pursuing. The rate of change also seems to have momentarily slowed. This will mean fund managers can focus instead on their core business.

wrap up

  • The Government has identified a range of tax measures that they will and will not be pursuing
  • Implementation of a full investment manager regime and further changes to the taxation of managed investment trusts is now anticipated
  • Foreign source anti-tax deferral (attribution) rules will not be going ahead
Greg Reinhardt

Expert advice delivering commercial solutions.

Greg Reinhardt Partner

Greg is the Head of our Tax practice and is a recognised specialist in taxation law, advising clients across a range of industries in relation to income tax, GST, stamp duty and other state taxes.

Greg has particular expertise advising clients in the financial services sector, including managed investment funds, derivative markets, insolvency and restructuring.

He advises public and private companies, investment funds, foreign corporations and banks in respect of the tax implications of mergers and acquisitions, disposals, corporate restructures, property and infrastructure projects, financing and leasing arrangements, international taxation, financing transactions, property and infrastructure projects, managed investment schemes and other collective investment vehicles (CIVs) and tax due diligence as well as the establishment of new businesses in Australia.

Greg has published a number of articles on taxation law issues, particularly on the topic of making Australia a financial services hub, and is a regular speaker at conferences.

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Seema Mishra

I am passionate and focused on delivering outstanding outcomes for my clients.

Seema Mishra Special Counsel

Seema specialises in taxation law and provides income tax, GST and stamp duty advice to clients in a range of industries.

Seema is a Special Counsel in our Taxation practice.

She advises clients in the financial services, including funds management, industry, along with large domestic and multi-national corporations in relation to a range of issues, including the tax implications of mergers and acquisitions, disposals, restructures, international taxation, as well as banking, restructuring and insolvency matters and the establishment of new business in Australia.

Seema also advises clients in the not-for-profit sector on structuring issues, including the establishment of charitable funds.

Seema's experience has included both domestic and international secondments. She has authored a number of articles and publications, and is a contributor to the Australian Tax Handbook (published by Thomson Reuters).

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