1	Inserts for
2	Tax and Superannuation Laws
3	Amendment (2014 Measures No. 2) Bill
4	2014: Investment Manager Regime
5
6
7

8

Commencement information

Column 1	Column 2	Column 3	
Provision(s)	Commencement	Date/Details	
1.	The day this Act receives the Royal Assent.		

9	Schedule 00—Investment Manager Regime
10

11	Income Tax Assessment Act 1997

12	1  Subdivision 842-I
13	Repeal the Subdivision, substitute:

14	Subdivision 842-I—Investment manager regime

15	Guide to Subdivision 842-I

16	@842-200  What this Subdivision is about

17	This Subdivision sets out rules about the taxation of certain foreign
18	funds (known as IMR foreign funds) that invest into or through
19	Australia.

20	IMR income and IMR capital gains from IMR financial
21	arrangements are not subject to Australian income tax. IMR capital
22	losses from IMR financial arrangements are disregarded for the
23	purposes of this Act.

24	These rules does not apply in relation to Australian residents.

1	Table of sections

2	Operative provisions

3	@842-205 Objects of this Subdivision
4	@842-210 IMR income
5	@842-215 IMR capital gain and IMR capital loss
6	@842-220 IMR concession
7	@842-225 IMR foreign fund
8	@842-230 IMR widely held test—general
9	@842-235 IMR widely held test—special rule for unpreventable circumstances of
10	short duration
11	@842-240 IMR widely held test—special rules for start-up and wind-down years
12	@842-245 Determining members and total participation interests for purposes of IMR
13	widely held test
14	@842-250 Meaning of IMR widely held entity
15	@842-255 IMR financial arrangement
16	@842-260 Amendment of assessments

17	Operative provisions

18	@842-205  Objects of this Subdivision

19	(1)  The object of this Subdivision is to remove impediments in
20	Australia’s income tax laws to particular kinds of investment made
21	into or through Australia by certain foreign managed funds that
22	have wide membership.

23	(2)  This object is achieved by providing an exemption from Australian
24	income tax to foreign residents for their investments through such
25	funds.

26	@842-210  IMR income

27	(1)  IMR income is assessable income for an income year of an *IMR
28	foreign fund in relation to an income year that is attributable to:
29	(a)  a return or gain from an *IMR financial arrangement that is a
30	*derivative financial arrangement; or
31	(b)  a return or gain from a *CGT event that happens in relation
32	to an IMR financial arrangement.

33	(2)  For the purposes of this section, in working out what is assessable
34	income of the *IMR foreign fund:
35	(a)  disregard section @842-220; and

1	(b)  disregard any *net capital gain for the income year of the
2	IMR foreign fund.

3	@842-215  IMR capital gain and IMR capital loss

4	(1)  An IMR capital gain is a *capital gain in relation to an income
5	year if the capital gain is from a *CGT event that happens in the
6	income year in relation to an *IMR financial arrangement of an
7	IMR foreign fund.

8	(1)  An IMR capital loss is a *capital loss in relation to an income year
9	if the capital loss is from a *CGT event that happens in the income
10	year in relation to an *IMR financial arrangement of an IMR
11	foreign fund.

12	@842-220  IMR concession

13	Annual information statement is condition of concession

14	(1)  This section applies if an *IMR foreign fund in relation to an
15	income year gives the Commissioner a statement for that year in
16	accordance with section 395-5 (Annual information statement) in
17	Schedule 1 to the Taxation Administration Act 1953.

18	Concession does not apply to Australian residents

19	(2)  Disregard this section in applying this Act in relation to an entity
20	that is an Australian resident.

21	Example:   An Australian resident is a beneficiary of a trust that is an IMR
22	foreign fund. In working out amounts included in the Australian
23	resident’s assessable income that are attributable to the fund:
24	(a)   disregard this section in determining the net income of the fund
25	for the purposes of Division 6 of Part III of the Income Tax
26	Assessment Act 1936; and
27	(b)   disregard this section in determining the capital gains of the fund
28	for the purposes of Subdivision 115-C of this Act.

29	Portfolio interest in issuer of IMR financial arrangement

30	(3)  The *IMR income for the income year of the*IMR foreign fund, to
31	the extent that it is attributable to a return or gain from a particular
32	*IMR financial arrangement, is *non-assessable non-exempt
33	income of the fund if:
34	(a)  where the return or gain is from a *CGT event—just before
35	the CGT event, the interest of the fund in the issuer of the

1	IMR financial arrangement does not pass the *non-portfolio
2	interest test (see section 960-195); or
3	(b)  otherwise—just before the return or gain is made, the interest
4	of the fund in the issuer of the IMR financial arrangement
5	does not pass the *non-portfolio interest test.

6	(4)  Disregard an *IMR capital gain or *IMR capital loss if:
7	(a)  the gain or loss is from a *CGT event that happens in the
8	income year in relation to a particular *IMR financial
9	arrangement of the *IMR foreign fund; and
10	(b)  just before the CGT event, the interest of the IMR foreign
11	fund in the issuer of the IMR financial arrangement does not
12	pass the *non-portfolio interest test (see section 960-195).

13	Permanent establishment that arises solely from general authority

14	(5)  Subsections (6) and (7) apply if:
15	(a)  the *IMR foreign fund carries on business through a
16	permanent establishment (within the meaning of
17	section 23AH of the Income Tax Assessment Act 1936) in
18	Australia; and
19	(b)  that permanent establishment arises solely because of the
20	existence or habitual exercise of a general authority to
21	negotiate and conclude contracts on the fund’s behalf by an
22	entity engaged by the fund as an agent.

23	(6)  The *IMR income for the income year of the*IMR foreign fund is
24	*non-assessable non-exempt income of the IMR foreign fund to
25	the extent that it is attributable to the permanent establishment.

26	(7)  Disregard the existence of the permanent establishment in
27	determining whether or not an *IMR capital gain or *IMR capital
28	loss from a *CGT event that happens in the income year in relation
29	to an *IMR financial arrangement of the IMR foreign fund is
30	disregarded under section 855-10.

31	@842-225  IMR foreign fund

32	An entity is an IMR foreign fund in relation to an income year if:
33	(a)  the entity:
34	(i)  is not an Australian resident at any time during the
35	income year; and

1	(ii)  is not a resident trust estate for the purposes of
2	subsection 95(2) of the Income Tax Assessment Act
3	1936 at any time during the income year; and
4	(iii)  the entity is a resident of an *information exchange
5	country (as determined in accordance with subsection
6	12-390(7) in Schedule 1 to the Taxation Administration
7	Act 1953) at all times during the income year; and
8	(b)  the entity:
9	(i)  does not carry on a trading business (within the meaning
10	of section 102M of the Income Tax Assessment Act
11	1936) in Australia at any time during the income year;
12	and
13	(ii)  does not control, and is not able to control, directly or
14	indirectly, the affairs or operations of such a trading
15	business in Australia at any time during the income
16	year; and
17	(c)  any of the following conditions are satisfied:
18	(i)  the entity is an *IMR widely held entity (see section
19	@842-250) at all times during the income year;
20	(ii)  the entity satisfies the *IMR widely held test (see
21	section @842-230) at all times during the income year;
22	(iii)  the entity is an entity of a kind specified in regulations
23	made for the purposes of this subparagraph.

24	@842-230  IMR widely held test—general

25	(1)  An entity satisfies the IMR widely held test if the entity has at least
26	25 *members (as determined in accordance with section
27	@842-245).

28	(2)  Despite subsection (1), the entity does not satisfy the IMR widely
29	held test if:
30	(a)  a *member of the entity has a *total participation interest in
31	the entity of 10% or more (as determined in accordance with
32	section @842-245); or
33	(b)  the sum of the total participation interests in the entity of 10
34	or fewer members of the entity is 50% or more (as
35	determined in accordance with section @842-245).

1	@842-235  IMR widely held test—special rule for unpreventable
2	circumstances of short duration

3	(1)  Treat an entity as satisfying the *IMR widely held test at a time
4	during the income year if:
5	(a)  (apart from this section) the entity does not satisfy the *IMR
6	widely held test at the time only because of a circumstance
7	(or circumstances); and
8	(b)  none of the following could have prevented the circumstance
9	(or circumstances) from arising:
10	(i)  a trustee of the entity;
11	(ii)  a manager of the entity;
12	(ii)  an *associate of the entity, or of a trustee or manager of
13	the entity; and
14	(c)  the number of days covered under subsection (2) in the
15	income year does not exceed 30.

16	(2)  A day is covered under this subsection if (apart from this section):
17	(a)  because of the circumstance (or circumstances), there is a
18	time during the day when the entity does not satisfy the
19	*IMR widely held test; or
20	(b)  if subsection (1) has a separate operation in respect of the
21	income year in relation to another circumstance (or other
22	circumstances)—because of the other circumstance (or other
23	circumstances), there is a time during the day when the entity
24	does not satisfy the IMR widely held test; or
25	(c)  the entity satisfies the IMR widely held test at a time in the
26	day only because of subsection @842-240(2) (start-up
27	period).

28	@842-240  IMR widely held test—special rules for start-up and
29	wind-down years

30	Start-up year

31	(1)  If an entity is created at a time in an income year (the start-up
32	year), apply the following rules for the purposes of section
33	@842-230:
34	(a)  treat the period in the start-up year during which the entity
35	was in existence as the whole income year;
36	(b)  treat the entity as satisfying the *IMR widely held test (see
37	section @842-240) at all times in the period:

1	(i)  starting when the entity was created; and
2	(ii)  ending 12 months after the entity was created.

3	(2)  However, paragraph (1)(b) is taken not to have applied if, apart
4	from this subsection:
5	(a)  the entity was an *IMR foreign fund in relation to the
6	start-up year as a result of paragraph (1)(b); and
7	(b)  the entity:
8	(i)  is not in existence at all times during the income year
9	after the start-up year (the second year); or
10	(ii)  is not an *IMR foreign fund in relation to the second
11	year.

12	Note:	If this subsection has the effect that the entity is not an IMR foreign
13	fund in relation to the start-up year, an assessment in respect of an
14	entity for the start-up year may need to be amended.

15	Wind-down year

16	(3)  If an entity was an *IMR foreign fund in relation to an income
17	year, but ceases to exist in the next income year (the wind-down
18	year), apply the following rules for the purposes of section
19	@842-230:
20	(a)  treat the period in the wind-down year during which the
21	entity was in existence as the whole income year;
22	(b)  treat the entity as satisfying the *IMR widely held test (see
23	section @842-240) at all times in the period:
24	(i)  starting at the start of the wind-down year; and
25	(ii)  ending when the entity ceased to exist.

26	@842-245  Determining members and total participation interests
27	for purposes of IMR widely held test

28	(1)  For the purposes of section @842-230 (IMR widely held test),
29	apply the rules in this section in determining:
30	(a)  the *members of an entity (the test entity); and
31	(b)  the *total participation interest in the test entity of each of
32	those members.

33	(3)  If an individual has a *membership interest in the test entity
34	indirectly, through one or more interposed entities:
35	(a)  treat the individual as a *member of the test entity; and
36	(b)  do not treat any of those interposed entities as a member of
37	the test entity.

1	(4)  For the purposes of subsection (3):
2	(a)  if an *IMR widely held entity or an entity covered by
3	subsection (5) has a *total participation interest in the test
4	entity—assume that all the *membership interests in the IMR
5	widely held entity are held by a number of individuals (the
6	notional members); and
7	(b)  work out the number of those notional members as follows:
8	(i)  work out the IMR widely held entity’s total
9	participation interest in the test entity;
10	(ii)  multiply that *total participation interest by 50 and
11	round the result upwards to the nearest whole number;
12	and
13	(c)  treat the *total participation interest in the test entity of each
14	of those notional members as nil.

15	(5)  An entity is covered by this subsection if:
16	(a)  it is an entity that is covered by paragraph 12-402(3)(e) in
17	Schedule 1 to the Taxation Administration Act 1953 (foreign
18	collective investment vehicles with a wide membership); and
19	(b)  any of these requirements are met:
20	(i)  it has a *total participation interest in the test entity of
21	less than 50%;
22	(ii)  another entity that controls it has a total participation
23	interest in the test entity of less than 50%.

24	(6)  If the test entity is a trust, do not treat an object of the trust as a
25	member of the trust.

26	(7)  Treat the following entities as together being one individual:
27	(a)  an individual;
28	(b)  each of his or her *relatives.

29	(8)  If two or more individuals (the actual individuals) are treated as
30	one individual (the notional individual) under subsection (7), treat
31	the notional individual as having all of the interests and rights of
32	the actual individuals.

33	Note:	Such interests and rights may give rise to a participation interest
34	and/or a membership interest in the test entity.

35	(9)  If an entity (the nominee) has interests and rights in the capacity of
36	nominee of another entity:
37	(a)  treat the nominee as not having those interests and rights; and

1	(b)  instead, treat the other entity as having those interests and
2	rights (in addition to the other entity’s interests and rights
3	apart from this subsection).

4	(10)  In determining a *direct participation interest of one entity in
5	another entity, disregard paragraph 350(1)(b) of the Income Tax
6	Assessment Act 1936 (rights of shareholders to vote or participate
7	in certain decision-making).

8	@842-250  Meaning of IMR widely held entity

9	An IMR widely held entity is any of the following:
10	(a)  an entity, the units or shares in which are listed for quotation
11	in the official list of an *approved stock exchange;
12	(b)  a *foreign life insurance company;
13	(c)  an entity that is covered by paragraph 12-402(3)(a) in
14	Schedule 1 to the Taxation Administration Act 1953 (life
15	insurance companies);
16	(d)  an entity that is covered by paragraph 12-402(3)(b) in that
17	Schedule (complying superannuation funds etc. with at least
18	50 members);
19	(e)  an entity that is covered by paragraph 12-402(3)(c) in that
20	Schedule (pooled superannuation trusts a member of which is
21	a complying superannuation fund member with at least 50
22	members);
23	(f)  an entity that is covered by paragraph 12-402(3)(d) in that
24	Schedule (managed investment trusts);
25	(g)  an entity that is covered by paragraph 12-402(3)(f) in that
26	Schedule (certain foreign pension funds);
27	(h)  an entity that is covered by paragraph 12-402(3)(g) in that
28	Schedule (foreign sovereign wealth funds);
29	(i)  an entity that is covered by paragraph 12-402(3)(h) in that
30	Schedule (entities whose capital and investment returns are
31	used for the primary purpose of meeting statutory
32	government liabilities or obligations).

33	@842-255  IMR financial arrangement

34	(1)  A *financial arrangement is an IMR financial arrangement unless
35	subsection (2) or (3) applies.

36	(2)  A *financial arrangement is not an IMR financial arrangement if
37	it is or relates to a *CGT asset that is:

1	(a)  *taxable Australian real property (see section 855-20); or
2	(b)  an *indirect Australian real property interest (see section
3	855-25).

4	(3)  A *financial arrangement is not an IMR financial arrangement if
5	its terms allow the *IMR foreign fund to:
6	(a)  vote at a meeting of the Board of Directors (or other
7	governing body) of the issuer of the financial arrangement; or
8	(b)  participate in making financial, operating or policy decisions
9	in respect of the operation of the issuer of the financial
10	arrangement; or
11	(c)  deal with the assets of the issuer of the financial arrangement.

12	(4)  Subsection (3) does not apply if that subsection applies solely
13	because the issuer of the *financial arrangement breached a term of
14	the financial arrangement.

15	@842-260  Amendment of assessments

16	Section 170 of the Income Tax Assessment Act 1936 does not
17	prevent the amendment of an assessment of an entity for the
18	purpose of giving effect to this Subdivision for an income year if:
19	(a)  the amendment is made to give effect to the operation of
20	subsection @842-240(2); and
21	(b)  the amendment is made within 7 years after the day on which
22	the Commissioner gives notice of the assessment to the
23	entity.

24	2  Subsection 995-1(1) (definition of IMR capital gain)
25	Omit “842-255(1)”, substitute “@842-215(1)”.

26	3  Subsection 995-1(1) (definition of IMR capital loss)
27	Omit “842-255(2)”, substitute “@842-215(2)”.

28	20  Subsection 995-1(1)
29	Insert:

30	IMR income has the meaning given by section @842-210.

31	21a Subsection 995-1(1)
32	Insert:

1	IMR financial arrangement has the meaning given by
2	section @842-255.

3	23  Subsection 995-1(1)
4	Insert:

5	IMR widely held entity has the meaning given by
6	section @842-250.

7	24  Subsection 995-1(1)
8	Insert:

9	IMR widely held test has the meaning given by section @842-230.

10	Taxation Administration Act 1953

11	27  After Division 394 in Schedule 1
12	Insert:

13	Division 395—IMR foreign fund reporting

14	Table of Subdivisions

15	Guide to Division 395

16	Guide to Division 395

17	@395-1  What this Division is about

18	Entities responsible for IMR foreign funds must give the
19	Commissioner an annual information statement about the fund.

20	Table of sections

21	@395-5	Annual information statement

22	@395-5  Annual information statement

23	(1)  An entity with responsibility for the day-to-day management of an
24	*IMR foreign fund in relation to an income year must give the
25	Commissioner a statement for that year in relation to the fund.

26	Note:	Section 286-75 provides an administrative penalty for breach of this
27	subsection.

1	(2)  If:
2	(a)  more than one entity is obliged under section (1) to give the
3	Commissioner a statement for an income year in relation to a
4	fund;
5	(b)  one of those entities complies with that obligation;
6	treat each of other entities as having complied with that obligation.

7	(3)  A statement under subsection (1) must be in the *approved form.

8	(4)  The statement must be given to the Commissioner no later than 3
9	months after the end of the income year.

10	Note:	Section 388-55 allows the Commissioner to defer the time for giving
11	an approved form.

12	(5)  The *approved form may require the statement to contain the
13	following information:
14	(a)  the name and address of the fund;
15	(b)  either:
16	(i)  the country of which the fund is a resident throughout
17	the income year; or
18	(ii)  if subparagraph (i) does not apply—each country of
19	which the fund is a resident at any time in the income
20	year; and
21	(c)  other information that is relevant to:
22	(i)  the fund’s status as an *IMR foreign fund in relation to
23	that income year; and
24	(ii)  the application of Subdivision 842-I of the Income Tax
25	Assessment Act 1997 to the fund.