At EY, we now expect eligible foreign funds to make more investments in Australia, including through direct transactions on the Australian stock exchange using Australian brokers.
This should lead to increased employment in Australia's asset management and financial services sector as funds, brokers and other advisors scale up their operations to take advantage of the new opportunities.
So with big changes ahead, here are five things you should know about the new IMR rules.
- The rules are intended to encourage particular kinds of investment made into or through Australia by foreign funds that have wide membership or use Australian fund managers. The completion of the changes is a significant move forward for the Australian financial services industry.
The IMR regime includes elements modelled on a long-standing UK investment manager concession and position Australia as an attractive location for the international asset management sector. Until now, these activities and the resulting employment have flowed to Singapore and Hong Kong, bypassing Australia.
- The new regime is important not just from the perspective of resolving tax issues that were beginning to be addressed in earlier law changes but more notably it allows foreign funds to redefine how they approach the Australian market and how they use Australian investment advisory and support services.
- The rules apply from the 2015-16 financial year. However foreign funds can elect to apply them retrospectively.
- A tax exemption is provided for foreign resident investors whether a gain is on revenue or capital account.
- Foreign funds wanting an exposure to Australian assets can now move forward with projects to look at how these sensible and workable rules may apply.
Considerations will include whether to apply the provisions to previous years and exploring the opportunities to refine how they invest in the region by making greater use of Australian managers and advisors.
Typical funds that might consider taking advantage of the rules include foreign hedge funds, foreign pension funds and other foreign collective investment vehicles.
Investing through a feeder fund-master fund structure or structuring through favourable tax jurisdictions, such as Hong Kong, should no longer be an impediment to accessing the exemption.
The rules apply from the 2015-16 year. However, foreign funds can elect to apply them retrospectively.
Foreign funds may qualify where they make direct investments (must not be attributable to an Australian permanent establishment) or if investments are made on the fund's behalf through an eligible independent Australian fund manager, in a range of passive assets.
A tax exemption is provided whether a gain is on revenue or capital account. Only foreign residents can benefit from the rules. Australian investments are restricted to interests of less than 10 per cent and must not be Australian real property interests.
For the direct investment concession, the entity must meet widely held tests. The indirect concession may be reduced in certain circumstances where a fund manager has rights to receive more than 20 per cent of the profits of the fund for the year.
Antoinette Elias, EY Oceania Leader - Wealth & Asset Management.
The views expressed in this article are the views of the author, not EY. This article provides general information, does not constitute advice and should not be relied on as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. Liability limited by a scheme approved under Professional Standards Legislation.