Almost there? Further consultation on CCIV’s

On 13 June 2018, Treasury released for public consultation the first tranche of the draft Corporate Collective Investment Vehicle (CCIV) Bill 2018 (“the Bill”) which according to The Hon Kelly O’Dwyer MP “will allow Australian fund managers to market to participating Asian financial markets using a well-recognised corporate structure vehicle”.

Whether or not such an objective will reap the desired results of enabling Australian fund managers to compete for limited capital more effectively than their offshore peers will ultimately depend on how open Treasury is to incorporating submissions arising from its public consultation which will hopefully be reflected in its second tranche release, and how it ultimately frames its final CCIV tax legislation.

In short, the Bill seeks to address amendments to:

• ensure the correct application of Chapters 2A to 2P of the Corporations Act 2001 (Corporations Act) to CCIVs;
• the proposed new Chapter 8B of the Corporations Act, which establishes the regulatory framework for CCIVs; and
• the explanatory materials, to incorporate a summary of the proposed legislative approach to depositary independence.

The release forms part of the broader Federal Government’s ten year enterprise tax plan, announced in the 2016-17 Federal Budget, which commits to the introduction of a new tax and regulatory framework for two new types of collective investment vehicles (“CIVs”):

1. a corporate CIV, and:
2. a limited partnership CIV.

As the limited partnership CIV is still some time away, and likely to be of more interest to wholesale private equity, real estate and infrastructure clients, recent government focus has been on the corporate CIV (“CCIV”) as a potential interim measure.

The Bill, while making some positive changes to the 2017 exposure draft legislation (see our 25 August 2017 posting), including new provisions in respect to related party transactions, members rights and meetings, and some fine tuning of existing issues surrounding the allocation of assets among sub-funds, share redemption to include corporate director requests as well as member requests, greater definition of the term ‘retail’ to provide more certainty around whether a PDS is required, and some more definition around ‘supervisory tasks’, still has a way to go before it adequately addresses our, and broader industry concerns.

With the pressure on Treasury to:

1. release the second tranche of the revised legislation which will hopefully address such areas such as external administration, product disclosure, licensing penalties and the potential transfer of existing trust funds into a CCIV structure;
2. finalising the revised draft of the CCIV tax legislation; and,
3. minimising the gap between the CCIV legislation and the Asia Region Funds Passport,

there is still quite a way to go before a verdict on the likely success (or not), of the new regime, can be made.

Where to now?

Foreign investors have come a long way since 2009 when the Australian Financial Centre Forum, issued their report – Australia as a Financial Centre – Building on our Strengths, which recommended the creation of a transparent tax regime for corporate collective investment vehicles, to mirror the existing regime for passive income derived through unit trusts.

At the time it was felt there was an urgent need to introduce a form of investment vehicle that would promote the export of Australia’s funds management capability by, amongst other things, retaining the tax flow-through treatment of the unit trust but in a vehicle that and was more familiar to offshore investors

As almost a decade has passed since this report, it is our view that foreign investors, which comprise a significant part of our valued client base, are now much more familiar and comfortable with the Australian ‘trust’ structure, to such an extent that the global funds management industry is now largely indifferent between using a trust and company. Combined with the fact that there is no actual legal requirement to establish a CCIV, we question whether the continued push to introduce the new regime is more a case of the government wanting to be seen to be fulfilling its Budget promise, as distinct from actually implementing best policy.

We have been following the evolution of the CCIV and CIV regimes in our news posts, and will continue to do so as we report on legislative updates and releases as they occur so as to keep you informed of developments in real time.

One Investment Group is Australia’s largest provider of outsourced trustee and administration services to investment managers and the only provider able to provide a holistic solution to offshore fund managers or a single service. Should you be considering establishing an investment vehicle for Australian assets or outsourcing or comparing service providers for some of your current roles, please do not hesitate to contact us.