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Australia Considers Reforming Taxation Of Collective Investment Vehicles

Thursday, November 3, 2016

The Australian Government has launched a consultation on the application of non-resident withholding taxes (WHTs) to collective investment vehicles (CIVs).

The consultation follows the Government's announcement in May that it would "consider non-resident withholding taxes on CIVs in this financial year to ensure that the Australian funds management sector is internationally competitive." In addition, in the 2016-17 Budget, the Government announced that it will introduce two internationally recognized CIVs, with the aim of making Australian managed funds more attractive to foreign investors.

According to Revenue Minister Kelly O'Dwyer, "Industry has indicated concern that the current withholding tax regime will inhibit the sector's international competitiveness and reduce the effectiveness of these measures."

The consultation document sets out a number of proposals for reform. The first involves no change to existing tax policy. The second concerns a Financial Services Council (FSC) proposal for a single five percent non-resident WHT for Australian CIVs and managed investment trusts (MITs) under the Asia Region Funds Passport (ARFP). This would replace existing non-resident WHT tax rates on interest, dividend, and MIT fund payments.

The third and final proposal would apply the single non-resident WHT rate of five percent to all Australian CIVs and MITs, rather than just ARFP funds. Income from investments in property would not be covered by the proposal.

The consultation is open until December 2.