The Government today announced its commitment to introduce the legislation regarding the third (and last) element of the Investment Manager Regime (IMR). It has also taken steps to correct certain technical issues that arose in relation to previously announced elements - IMR 1 & 2.


The IMR regime which is being introduced in three elements aims to encourage foreign funds to invest in Australia and enhance Australia as a financial centre. The first two elements dealt with;

  • IMR 1 – solving the so called “FIN 48” accounting issue that had caused concern to foreign funds making portfolio investments into Australia. IMR 1 sought to ensure that foreign funds would not be taxed on their investments by reason of having an Australian source. However IMR 1 ceases to apply for tax years commencing 1 July 2011 as the exemption was intended to be wrapped into the final IMR 3 (that will apply from 1 July 2011).
  • IMR 2 – this allowed foreign funds to effectively appoint local mangers to manage foreign assets and Australian assets that in the latter case were held solely on capital account. IMR 2 became operative from 1 July 2010 and continues indefinitely though it is likely to be incorporated into IMR 3. The position of Australian assets held on revenue account was not dealt with in IMR 2 as this will be covered in IMR 3.


The Government has now announced that it will introduce the legislation dealing with IMR 3 in the first half of 2013. The intention is that IMR 3 will continue the FIN 48 exemption for foreign funds introduced in IMR 1 – that is it will cover the period from tax years commencing 1 July 2011 and in addition expand upon the types of assets that can be managed under IMR 2.

In addition the announcement notes that it will allow tracing through interposed entities for the purposes of meeting the “widely held test" and “concentration test” that currently exist in IMR 1 & 2. There had been concern that there were technical issues that may have inhibited the ability to trace and so the Government’s announcement is welcome confirmation of the original policy behind the provisions.

Of note is that IMR 3 was originally confined to investors in countries with which Australia had entered an “Exchange of Information Agreement”. As such funds in some countries that do not fall into that category (e.g. Luxemburg) may fall outside the benefit of the concessions that will be allowed under IMR 3.

The other aspect is that the type of investor that can utilise the IMR regime may expand to a wider class of investor (e.g. UCITs etc.) once the proposed rules for the Collective Investment Regime (CIV) that was the subject of a Board of Taxation review are finalised.

The announcement can be accessed here.