Thinking | 23 November 2011

Federal Government endorses IMR regime

On 16 December 2011 the Federal Government announced the final element of the new Investment Manager Regime (IMR), as proposed by the Board of Taxation.

These announcements complement and extend the concessions previously announced throughout 2011 that seek to position Australia as a financial services hub for managing the Asia-Pacific region’s wealth by removing tax uncertainties. See our Update of 14 September 2011.

The exposure draft legislation released on 16 August 2011 prevented a foreign fund from having a permanent establishment in Australia simply because it used an Australian fund manager. However, it didn’t address the issue of whether the income had an Australian source.

The new announcement includes a comprehensive IMR that greatly expands the previous exemptions. The most substantial feature is an exemption from taxation for income and gains which have an Australian source. The exemption will only apply in respect of income and gains from portfolio interests (ie a less than 10% interest).

Other key features recommended by the Board of Taxation and endorsed by the Government include:

  • limiting the exemption to foreign funds domiciled in countries which have entered into information exchange agreements with Australia;
  • foreign funds covered by the IMR will not be treated as Australian residents;
  • eligibility for the IMR will be subject to a look-through, widely-held test, with a commitment that the test will be as simple as possible;
  • the exemption will apply to gains and losses from a prescribed list of investments, which will be open to industry consultation, but is likely to include:
    • portfolio investments in ASX listed entities, even if they are ‘land-rich’;
    • portfolio investments in non-ASX listed entities only if they are not ‘land-rich’;
    • land transactions will not be prescribed investments; and
    • carrying on or controlling trading businesses will not be prescribed investments.
  • withholding taxes will continue to apply to dividends, interest and royalties; and
  • work will continue around adequate integrity measures.

The Government has foreshadowed legislation coming before Parliament in the first half of 2012, but effective from 1 July 2011.  The drafting of the legislation will be critical to ensure the scope of exemptions is consistent with this announcement.

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