Investor Update Data Alert: Australia’s Managed Funds –Taxation and Regulation

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Data Alert: Australia’s Managed Funds – Taxation and Regulation

1 July 2010

The Government is engaged in a systematic review of the taxation and regulatory arrangements covering financial services, including the funds management sector. There are three reviews of relevance:

Australia’s Future Tax System Review (the “Henry” review)
Australia as a Financial Centre: Building on Our Strengths (the “Johnson” review) and the
Super System Review (the “Cooper” review).

Recently, the Government has responded to the Johnson review and announced in principle or direct support for nearly all of its recommendations, including the introduction of an Investment Management regime, the establishment of an online regulatory gateway and the development of an Asia Region Funds Passport.

In response to the Henry review, the Government announced in the 2010-11 Budget the phase down of the Interest Withholding Tax on financial institutions, with the main rate to be reduced from 10 to 5 percent by 2014-15 with an aspirational target of zero subject to fiscal circumstances. This builds on changes announced in the 2009-10 Budget by cutting the withholding tax rate on fund payments distributed from Australian managed investment trusts (MITs) to foreign resident investors. (See Data Alert 20 August 2009)

On 7 May 2010, the Assistant Treasurer, Senator Nick Sherry, announced a ‘New Tax System for Managed Investment Trusts’. A key feature of the new MIT tax system is an elective attribution system of taxation that will provide that investors will be taxed only on the income that the trustee allocates to them on a fair and reasonable basis, consistent with their entitlements under the trust deed or the trust’s constituent documents.

The Government’s recent responses to the Reviews and its latest announcement of a wide range of taxation measures has increased the international attractiveness for exports and investments in Australia’s financial sector."

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