“There are two magic words in global funds tax structuring – ‘flow through’,” writes Shaun. “Investors expect it and many jurisdictions facilitate it. However, until a few weeks ago, a corporate flow through vehicle was not on Australian funds’ structuring menus.”
In the fierce competition for global capital, Shaun says that the absence of a flow through corporate collective investment vehicle (CCIV) was recognised as a significant disincentive.
“For an Australian incorporated company, not being a flow through entity has meant the company is taxed at the corporate rate of up to 30 per cent. By contrast, trusts in Australia are commonly ‘‘flow through’’, which means beneficiaries are taxed on the trust’s income (instead of the trust itself).”
Despite the clear advantages, Shaun says there are teething problems with the new regime that will need to be worked through.
“First, there are no specific CCIV tax rollovers that would enable existing AMITS [attribution managed investment trusts] to easily convert to a CCIV sub-fund so, unless further changes are enacted, most CCIVs will have to be built from the ground up.
“Second, CCIVs raise some thorny issues from a state taxes perspective. While most states and territories would treat a CCIV as a company (which has a lower dutiable acquisition threshold than a trust in some jurisdictions), it is possible the states will legislate to deem a CCIV to be a trust for duty and land tax purposes. This could deliver less favourable outcomes for investors. The best scenario would be for legislation to be harmonised across the federation, but it is too early to tell if that’s how it will play out.
“While take-up of the new structure is expected to be slow, it should gather pace as the wrinkles are ironed out and market participants become more comfortable with the way it operates.”
To read Shaun’s full article in the AFR, click here.