Australia updates corporate collective investment vehicle legislation

Broadly, CCIVs will offer an internationally recognisable investment vehicle that can be readily marketed to foreign investors, including through the Asia region funds passport (ARFP), which provides a multi-lateral framework for eligible funds to be marketed across member countries with limited additional regulatory requirements.

The proposed draft legislation ensures that the tax treatment of CCIVs broadly aligns with the existing treatment of attribution managed investment trusts (AMITs), providing investors with the benefits of flow-through taxation.

CCIVs will be subject to similar eligibility criteria as managed investment trusts (MITs), such as being widely-held and not closely-held, limited to passive income activities, and being an Australian resident.

There are concerns within the industry that the draft legislation in its current form may result in double taxation for investors in certain circumstances (in comparison to the AMIT/MIT regime), and various submissions addressing these concerns have been made to the Australian Treasury.

In February 2019, certain amendments were made to legislation dealing with the tax risks posed by stapled structures. Broadly, the original legislation proposed changes to:

• Stapled structures, by increasing the non-resident MIT withholding rate from 15% to 30% on certain fund payments;

• Thin capitalisation, by preventing double gearing structures;

• The super fund withholding tax (WHT) exemption for foreign residents, and

• The sovereign immunity tax exemption, to limit access to tax concessions for foreign investors by limiting the scope of the sovereign immunity tax exemption.

Broadly, the most recent amendments in February 2019 to this legislation provide for the following:

• MIT taxation concessions for premises that are used primarily for the provision of disability accommodation, despite being residential premises; and

• Specific rules concerning the treatment of certain premises used primarily to provide student accommodation has been removed. This is in response to views raised by some stakeholders in the inquiry by the Senate Economics Legislation Committee.

The Australian government has finally passed the changes to the company loss rules, which introduces the "similar business test".

These amendments are intended to overcome the restrictions which discourage loss-making companies from seeking new investors or exploring new profit-making activities for fear of losing past year losses.

The new "similar business test" will supplement the "same business test" for the purpose of working out whether a company's tax losses and net capital losses from previous income years can be used as a tax deduction in a current income year. These measures will apply to income years starting on or after July 1 2015.

Like the same business test, the focus of the similar business test is on the identity of the business. The test looks at all of the commercial operations and activities of the former business and compares them with all the commercial operations and activities of the current business to work out if the businesses are similar.

Australia's Full Federal Court has recently handed down an important decision pertaining to the tax residency of a taxpayer, and on the definition of a "permanent place of abode" in this context. This decision is particularly important for Australian expatriates living and working overseas.

The taxpayer in question was a dual citizen (Australian and British), who permanently departed Australia in 2009. The taxpayer lived in an apartment building in Bahrain, commuting daily to Saudi Arabia.

For two years, he leased a two-bedroom apartment, but in 2011 he moved to a one-bedroom apartment in the same building when he realised that his wife and children would not join him.

In summary, the court held that the taxpayer in question had a permanent place of abode in Bahrain, even though he lived in temporary accommodation, and therefore allowed his appeal against a decision that he was a resident of Australia.

The court held that a "permanent place of abode" is not a reference only to a person's specific house or flat or other dwelling, but also refers to a town or country. The court concluded that the evidence in this case showed that the taxpayer had abandoned Australia as a place to live and work and that his permanent place of abode was in Bahrain. Accordingly, he was not a tax resident of Australia.

Broadly, the exposure draft of technical amendments to the AMIT regime introduced by the Australian government in mid-2018 has now passed Parliament. The draft aims to address a number of technical issues arising from the AMIT regime.

As a result, the AMIT technical amendments will shortly become law.