In summary

  • The Bill enacts the rules to create a new class of company, a Corporate Collective Investment Vehicle, the investors in which are to be taxed on a flow-through basis.

  • That tax outcome will usually be accomplished by attaching to the Corporate Collective Investment Vehicle and its shareholders the tax rules which currently apply to the trustee and investors in an Attribution Managed Investment Trust.

  • However, if the AMIT requirements are not met, the Corporate Collective Investment Vehicle and its shareholders may instead be taxed under the rules in Div 6 or Div 6C.

  • The new regime will start from 1 July 2022.

In detail 

The Corporate Collective Investment Vehicle Framework and Other Measures Bill 2021 was introduced into Parliament on 25 November. It represents the final stages in the protracted project to create a corporate vehicle for collective investment activity, taxed on a flow-through basis [a CCIV]. Our recent Tax Insights charting the history of the project are linked below.

The Bill and the Explanatory Memorandum each run to several hundred pages but, for once, the tax component is relatively short. The brevity is achieved by co-opting the existing rules for taxing income flowing through trusts (particularly the Attribution Managed Investment Trust [AMIT] regime) and applying it to CCIVs, rather than by enacting a separate tax regime. The alignment of tax regimes is meant to ensure that fund managers will be able to choose the CCIV structure confident that investors will be in the same position as using a trust would deliver.

The key design features of the tax regime have not changed since the most recent Exposure Draft, although some new rules have been added to deal with the situation where the CCIV fails some of the requirements of the AMIT regime for an income year, and the shareholders and CCIV end up being taxed under Div 6 or Div 6C instead:

  • CCIV: a CCIV is a class of company registered under the Corporations Act which satisfies certain regulatory requirements. Since the company must be incorporated under the Corporations Act, it will be an Australian resident for tax purposes

  • CCIV sub-fund: each ‘sub-fund’ of a CCIV (ie, each segregated pool of assets, liabilities, income and expenses registered with ASIC as a separate sub-fund) is to be treated as a separate entity for tax purposes; that is, a single CCIV can serve as the umbrella for many different investors and investments

  • CCIV sub-fund trust: each ‘sub-fund’ of a CCIV is to be treated as a trust for all tax purposes, and a unit trust. The trustee of each trust is the CCIV

  • the effect of these deemings is both (i) to attract the tax rules which apply to trustees and beneficiaries, and (ii) to switch off the tax rules which apply to a company and its shareholders. A specific treaty over-ride is enacted to ensure the CCIV and its shareholders are treated as a trustee and beneficiaries, and not as a company and shareholders, and another rule ensures that a CCIV sub-fund cannot be a head entity, or a member, of a tax consolidated group

  • accessing AMIT treatment: a number of adjustments are then made to the existing requirements for entering the AMIT regime so that the rules can be met by a CCIV. The remaining requirements must be met at the level of each CCIV sub-fund trust if the CCIV and its investors are to enjoy AMIT treatment: for example, the sub-fund must be widely-held and not closely held, the sub-fund must not carry on a trading business, and so on. If those conditions are met, the CCIV sub-fund trust is automatically deemed to be an AMIT; it is not necessary (or possible) to make the election into the AMIT regime that is required for managed investment schemes

  • impacts of AMIT treatment on CCIV sub-fund trust: where a CCIV sub-fund trust satisfies these requirements,

    • the CCIV is able to elect capital account treatment for gains and losses made on various assets held by the sub-fund trust

    • the CCIV sub-fund trust is deemed to be a fixed trust (which assists in carrying forward tax losses)

    • the non-arm’s length income rule applicable to MITs is also triggered for a CCIV sub-fund trust

    • the unders-and-overs mechanism is available for minor discrepancies between the amounts actually attributed and the amount on which tax should have been paid

    • if there is a shortfall in either (i) the total of any of the various components earned during the year by the CCIV sub-fund trust, or (ii) in the amounts attributed to the members appearing in the multiple AMMA statements, the CCIV will be liable to pay tax

  • impacts of AMIT treatment for investors: if investors are taxed under the rules in the AMIT regime:

    • the CCIV attributes amounts of assessable income, exempt income, non assessable non exempt income and tax offsets to investors of each sub-fund on a fair and reasonable basis and the members are taxed as if they had derived the attributed amounts directly, with source and character retained

    • investors will increase the cost bases of their shares in the CCIV for amounts which are attributed but not distributed (and decrease their cost bases if the amount distributed exceeds the amount attributed)

    • non-resident investors in CCIVs will be liable to withholding tax under the MIT withholding tax regime; that is, payments to non-residents will not be dealt with under the dividend withholding tax rules

  • changes to Div 6: because (i) the company / shareholder tax rules are switched off completely, but (ii) the requirements of the AMIT rules may be failed in an income year, the new rules make various modifications to Div 6 as it may apply instead:

    • a CCIV must calculate its ‘trust income’ for an income year: if the CCIV is a retail CCIV at the end of the income year, this amount is the amount of ‘profit’ shown in ‘the financial report for the sub-fund for the income year that the CCIV is required to prepare …’ under the regulatory rules, and if it is not a retail CCIV, it is the amount that would be shown the financial report if the CCIV had to prepare them. This provision attracts the requirements for the sub-fund’s accounts to be prepared in accordance with the accounting standards and to give a true and fair view. It may constrain some of the discretions that the CCIV might otherwise have about classification and treatment of amounts. It may also create other problems where accounting profit differs significantly from the amount paid (or which can be paid) as a cash dividend

    • shareholders in the CCIV will be taken to be ‘presently entitled’ to the share of the current year income of the CCIV sub-fund trust for the year that is payable to the beneficiary by way of dividend, declared up to 3 months after the end of the income year –

      • this represents a change from the Exposure Draft which required that the dividend be ‘paid’ before a shareholder would be presently entitled, but it is still more demanding than the current rules for ordinary trusts where beneficiaries can be made ‘presently entitled’ to a share of trust income in other ways

      • dividends sourced from retained profits are not relevant for determining present entitlement

      • if a dividend has been during a year, paid but the sub-fund has an accounting loss for the year, the distribution will be taken to have been paid out of corpus trust which will reduce the investor’s cost base. If profits exist but they are in a sub-fund, presumably they will need to paid up to the head fund as a dividend in order to prevent this outcome.

    • if the CCIV has earned either exempt or NANE income, the shareholders in the CCIV will be taken to be ‘presently entitled’ to a fixed share of those amounts based on their share of the total dividends payable

    • if the CCIV does not declare or pay dividends equal to the amount of the CCIV sub-fund trust’s net income, the CCIV will be taxed on this amount

    • the CCIV has a new obligation to send to each beneficiary, within 3 months of the end of the year of income, a form setting out the amount of the dividends and how much has come out of the fund’s profits. Failure to supply this form in a timely manner triggers a penalty

  • changes to Div 6C: if the CCIV (i) has failed the requirements of the AMIT rules because it has carried on a trading business, and (ii) it is a trading trust, the rules just discussed will flow through into Div 6C, the regime which will apply instead.

Start date

This Bill ought not to prove contentious but it will not be passed in the few remaining sittings days of this year. Assuming the Parliament is not dissolved during the recess, passage may be expected early in the new year. The amendments creating the tax regime for CCIV sub-funds and their investors start from 1 July 2022.