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Wednesday, 27 June 2012
Page: 8303


Mr TONY SMITH (Casey) (10:01): I rise on behalf of the coalition to speak on the Tax Laws Amendment (Investment Manager Regime) Bill 2012. Let me say at the outset that the coalition supports this bill and what underlines it. I will speak very briefly on it. It was introduced into the House last Thursday. In summary it establishes an investment manager regime. It has two schedules as the minister introducing it last Thursday outlined. I will deal with each of them briefly and make some concluding remarks about the manner in which the government has handled this up until this point.

Schedule 1 establishes the investment manager regime by allowing income of an overseas based managed fund to be treated as non-assessable, non-exempt income in Australia where that income is derived from an investment made overseas that has been made through an Australian based fund manager. As was outlined in the minister's introductory speech, the purpose of this schedule is to allow Australian based fund managers to compete more effectively for investment mandates from overseas based managed funds.

An example that has been put forward is if you have a Singapore based fund that wishes to make an investment in a portfolio of Japanese bonds and the fund would like to engage an Australian based fund manager with specific expertise in Japanese bonds to manage that portfolio. Without the changes envisaged in this bill, the Singapore based fund will be considered to have a permanent Australian establishment solely because it was using an Australian based fund manager, and any income from this investment arrangement known as 'conduit income', as outlined in the minister's second reading speech, would be therefore subject to Australian tax rules.

The changes contemplated in schedule 1 would ensure that the overseas based fund is not considered to have a permanent Australian establishment solely because it has engaged an Australian fund manager to manage its portfolio, and the conduit income would not be subject to Australian tax rules. The explanatory memorandum naturally outlines some more of the intricate detail with respect to this but, as I said a few minutes ago, the outcome will be that Australian based fund managers will be able to compete more effectively for investment mandates from overseas based managed funds. ,Schedule 2 is designed to deal with, as the minister outlined in his second reading speech, removing uncertainty surrounding the impact of the United States accounting standard ASC 740-10 or, as the minister outlined, the amendment often referred to as FIN 48. Essentially, this schedule is designed to remove some uncertainty in that respect and, initially, these rules apply only to US public companies, but since the end of December 2009, they have also applied to private entities that prepare US accounts. So this schedule is also a necessary change to remove any uncertainty in that respect.

As I said at the outset, the opposition supports this bill. As was pointed out by the minister, they flow from the Johnson report and they have been in the public domain for a considerable period of time. Indeed, these recommendations were released way back at the beginning of 2010. Minister Shorten first announced he would legislate to introduce what we are discussing today in December 2010 and January 2011. In conclusion, I point out that, obviously a significant period of time has elapsed since the minister's announcement. The Financial Services Council said at the beginning of 2011:

The announced changes will provide tax certainty for foreign investors investing in Australian managed funds. It will take away the uncertainty that currently exists which can result in foreign investors being unfairly taxed.

The importance of this change cannot be underestimated—it removes a major barrier to Australian based fund managers attracting foreign investment.

They went on to say:

This will give Australian based fund managers the certainty they need when competing internationally and is a major step towards Australia becoming a real global financial centre.

I quoted from the Financial Services Council media release of 19 January—that is back at the time of the recommendations; even prior to the minister's announcement.

There has been a delay between the report's release, the minister's announcement of action and the debate of this legislation. As I have said, the opposition supports this. The delay has meant that the benefits of this have not flowed as early as they could have but, as I said at the outset, the opposition supports this legislation. It will have a beneficial impact.