After a long period of consultation and legislative drafting, the Government has now legislated the tax and regulatory frameworks for Corporate Collective Investment Vehicles to commence in Australia from 1 July 2022.
In January 2019, we reported on the Federal Government’s proposal to introduce a new form of collective investment vehicle – the corporate collective investment vehicle (‘CCIV’) – to the Australian funds management landscape (“Australia’s new initiative for a more competitive financial sector: welcome the “Corporate Collective Investment Vehicle”). Amongst other things, the introduction of CCIVs would be one component of Australia’s participation in the Asia Region Funds Passport scheme (‘ARFP’), seeking to increase foreign investment and the competitiveness and efficiency of Australia’s financial markets.
Modelled on investment vehicle structures in use in other jurisdictions, CCIVs aim to fill the gap in Australia’s financial markets of an internationally recognisable and readily accessible collective investment vehicle.
After a long period of consultation and legislative drafting, the Federal Government has now passed the Corporate Collective Investment Vehicle Framework and Other Measures Bill 2021 (“Bill”) which will insert Chapter 8B into the Corporations Act 2001 (Cth) providing the tax and regulatory framework for CCIVs in Australia, with the regime to commence from 1 July 2022.
Regulatory and tax framework of CCIVs
A CCIV will be a new form of ASIC-registered company, which is limited by shares and with a sole corporate director. That corporate director must itself be a public company holding an appropriate Australian Financial Services Licence (AFSL). The corporate director can be thought of in a similar way to the responsible entity of a registered managed investment scheme.
A CCIV will comprise of one or more ‘sub-funds’ which are operated separately and distinctly from one another: it will be up to the ‘umbrella’ CCIV (under the control of its corporate director) to allocate assets and liabilities to the sub-funds in accordance with the particular allocation rules and mandates of the sub-funds.
Rather than introducing a new tax regime, the existing framework applicable to attribution managed investment trusts (‘AMIT’) will also apply to CCIVs: sub-funds meeting the AMIT eligibility criteria will be treated as separate unit trusts, such that investors will be taxed on an attribution ‘flow through’ basis for income derived by the sub-fund to which they have exposure. Further amendments to the Income Tax Assessment Act 1997 (Cth) to support this will be forthcoming. Sub-funds failing to meet the AMIT eligibility criteria will be taxed in accordance with the general trust or trading trust provisions.
Potential for listing CCIVs
One key (and pleasing) departure from the CCIV regime as it was originally proposed is the possibility of listing certain CCIVs and CCIV sub-funds on prescribed Australian financial markets, including the ASX. Initially this will be limited only to retail CCIVs with one sub-fund or retail sub-funds of a CCIV holding only that sub-fund. However, this will not prevent quotation of a share in a CCIV on a financial market such as AQUA, and this could include wholesale CCIVs or CCIVs with one or more wholesale sub-funds. Further, the limitation on listings may be revisited in the future once the CCIV regime is up and running.
To facilitate this, the ASX has released a consultation paper proposing amendments to the ASX listing and operating rules to reflect the introduction of CCIVs in Australia. While ASX’s proposed amendments are presently narrower than the CCIV legislation permits, contemplating the listing of CCIV sub-funds only rather than the umbrella CCIV itself, consultation is open until 18 March 2022 so it’s possible the position will change.
Registration as an Australian Passport Fund
To capitalise on CCIVs’ potential to gain traction with offshore investors (given that they will be a more familiar form of collective investment vehicle than Australia’s traditional unit trust managed investment schemes), CCIVs will soon be able to register sub-funds as Australian passport funds under the Asia Region Funds Passport (ARFP) scheme. This should facilitate easier and more flexible offering and distribution of CCIVs to investors in participating ARFP jurisdictions.
Where to from here?
The overall legislative framework for CCIVs to commence is now in place. However, some of the finer details remain to be locked in. In particular, the Corporations Regulations applicable to CCIVs have yet to be finalised and, as indicated above, elements of the tax treatment also remain to be finalised. Nonetheless, the expectation is that CCIVs will be operative in Australia from 1 July 2022.
If you would like to discuss how CCIVs might fit within your business, we would be pleased to assist you in understanding the new framework.