Australian Federal Government Set to Finalise IMR Reforms by Early 2013

Friday, January 4, 2013

Australian Federal Government Set to Finalise IMR Reforms by Early 2013

According to the Australian federal government, the Investment Manager Regime or IMR is expected to see further changes in the first six months of 2013. The government is all set to introduce the final element of the regime to the Australian parliament in the coming months. A key recommendation presented by the AFCF (Australian Financial Centre Forum), the IMR was introduced in November 2009. The regime was developed in response to the varying accounting standards of the United States.

These changes requires all US managed funds to verify their tax positions and determine whether the claimed positions could uphold themselves only on their technical merits. After these changes were reviewed, further policy gaps were found in Australia. This indicated that US managed funds in Australia owed higher taxes in the country than they were already paying. Following this revelation, over $500 million worth of foreign investment funds were frozen until the matter is resolved.   

Findings of the AFCF report

Headed by Mark Johnson, the Australian Financial Centre Forum report identified several anomalies and uncertainties pertaining to the country's tax positions on foreign funds. The report recommended a new regime to govern foreign fund managers while discouraging foreign funds from using local fund managers.

To resolve these discrepancies in the Australian tax position, the federal government is set to introduce the IMR. Through the new regime, the government is also clarifying tax laws. The new laws dictate that any income earned by local Australian fund managers on behalf of foreign assets and clients should not be subject to regular Australian taxes. This income earned by foreign assets is known as conduit income.         

Conduit income and its role in the IMR

First introduced in 2005, conduit income rules were meant to allow specific foreign income to be paid in one of three ways. Companies could either pay the conduit income directly, through single or multiple Australian entities or through foreign owners to prevent additional taxation. However, when conduit income was received through an Australian company, these rules did not address the specifications for the conduit income received through managed finds.

According to the new changes, specific investments that were previously levied with taxes are now exempt from that specific tax. These forms of investment include income and profits from foreign funds that are considered permanent establishment and levied with Australian income tax. When IMR was introduced in June 2012, the forum consulted with the industry to assess the different funds that could access the IMR and recognized that foreign managed investments were one of them.

After careful consideration, the Australian federal government is set to make changes to allow investments and funds to reach underlying investors. To meet these widely held as well as concentration tests, funds are required to have a minimum of 25 investors. The federal government is calling these changes as a better tax framework to enhance internationalism for the country's fund management industry. These changes are also set to provide better access by Australian fund managers to offshore investors.    

About the author –

Grace is an expert associated with i3Group a leading payroll service provider.

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