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Thursday, 23 August 2012
Page: 6234

Senator CORMANN (Western Australia) (12:45): The coalition have long supported the establishment of an investment manager regime as recommended by the Johnson report into Australia as a financial centre, and we support this bill. This investment manager regime will help facilitate Australia's world-class financial services industry to grow the export of their services to overseas investors, especially in the Asia-Pacific region.

This Tax Laws Amendment (Investment Manager Regime) Bill 2012 establishes an investment manager regime that provides clarity on the tax treatment of income derived by widely held overseas based funds where those funds use an Australian based fund manager to invest in overseas based assets. Such income would not be subject to Australian taxation solely because the overseas based fund chose to use an Australian based fund manager to manage its investments where the actual investment is made outside Australia. These changes will apply from 2010-11 onwards.

This bill also clarifies the tax treatment of income received for 2010-11 and previous income years by foreign funds that have not lodged a tax return in Australia and that have not previously had an assessment made of their income tax liability. This change is required to assist overseas funds to comply with the unintended consequences of recent changes to US accounting rules known as FIN 48. Without these changes the application of these US rules would create a potential tax liability in Australia for overseas based funds on income that was previously not considered to be taxable and had not been taxed in Australia.

This bill will provide clarity and certainty on the tax treatment of portfolio investment income of overseas managed funds. The changes will enhance Australia's attractiveness as an investment destination and will benefit Australian financial services businesses. These changes have some retrospective effect; however, the retrospectivity on this occasion is beneficial to the taxpayers concerned.

This bill introduces two elements of an investment manager regime in Australia. The third element required to fully establish the investment manager regime has yet to be announced by the government. The establishment of this investment manager regime was, as I said, one of the centrepieces of the Johnson report recommendations on Australia as a financial centre released in January 2010. The coalition has supported the recommendations made by the Johnson report, including the establishment of this investment manager regime.

Minister Shorten first announced that he would legislate to introduce this investment manager regime back in December 2010 and again in January 2011. It has taken some time, but we do congratulate the government for having finally brought this legislation forward, because for the past 18 months Australian fund managers have continuously told the government that overseas investors will only invest in Australia once this legislation has passed the parliament. The Johnson report highlighted that the sooner we act the sooner we will empower our financial services sector to access the growing markets on our doorstep and establish Australia as a genuinely world-class financial services hub.

The establishment of an investment manager regime is also strongly supported by Australia's financial services industry and, in particular, the Financial Services Council. It will be particularly beneficial to smaller, specialised and 'boutique' Australian fund managers. In the past, larger fund managers have been able to establish offshore operations in other financial centres such as New York, Luxembourg, Singapore or Hong Kong to get around export barriers of Australia's tax system. However, this has never been a cost-effective option for smaller yet highly sophisticated and very talented Australian fund managers. These smaller players will now be able to compete more effectively against both larger locally based competitors and overseas competitors, which of course will enhance choice and competition in the Australian market.

The coalition is very supportive of ongoing efforts to make Australia into a genuine financial services hub in the Asia-Pacific region. This is a very good step forward, but there is still much work to be done. The Johnson report did provide a very clear and positive road map for the way forward. I do hope that the government, in the time that is left between now and the election, will start prioritising the implementation of some of the other recommendations in that report. Having quite a high-quality, world-class financial services sector here in Australia, we are not fully tapping into that potential because we do actually have comparatively low levels of cross-border transactions and comparatively low levels of exports in financial services when compared to similar nations. These are the sorts of initiatives that will be required in order to grow that particular sector of the economy more strongly and, in the process, help to strengthen our economy moving forward. With those few words I commend this bill to the Senate.