After strong industry feedback, the CCIV regime is ready to commence on 1 July 2022 17 min read
Nearly five years after the Federal Government first released the exposure draft legislation for the new corporate collective investment vehicle (CCIV), on 10 February 2022 the Corporate Collective Investment Framework and Other Measures Bill 2021 (the CCIV Bill) was finally passed by the House of Representatives and the Senate. During these five years, there were multiple rounds of draft legislation and public consultation and the CCIV regime, particularly the tax component, was re-worked in response to strong industry feedback. We now have the final CCIV regime, ready to commence on 1 July 2022 following royal assent. We have summarised the key features of the CCIV regime below.
- A CCIV is a new type of company limited by shares. The CCIV will be a single legal entity and must have at least one sub-fund.
- Sub-funds will not have separate legal personality but each sub-fund's assets and liabilities will be segregated from the assets and liabilities of other sub-funds. This feature may be of particular interest to fund managers who currently create multiple classes of units in unit trusts to obtain a similar effect but with the risk of cross-class liability.
- A CCIV must have a corporate director which, like a responsible entity, must be a public company and must have an appropriate Australian financial services licence (AFSL) (a new AFSL authorisation will be introduced). There is no longer a requirement for retail CCIVs to have a depositary to hold on all the assets of the CCIV.
- Certain features of the existing managed investment scheme (MIS) regime will be replicated for CCIVs to ensure regulatory parity between the two frameworks. In other instances, the ordinary company rules under the Corporations Act will apply to the CCIV. While a lighter touch regulatory approach has been adopted for wholesale CCIVs, all CCIVs (including wholesale CCIVs) must be registered with ASIC, which means they are more heavily regulated than unregistered wholesale MISs. This may mean that the CCIV may be less attractive to wholesale fund managers and their investors.
- A sub-fund may cross-invest (ie acquire shares in another sub-fund in the same CCIV) and a single asset may be allocated across multiple sub-funds, in each case subject to certain conditions. These features provide greater flexibility to create different investment structures more efficiently.
- There have been significant changes to the CCIV tax regime since the release of the original exposure draft legislation with Parliament ultimately settling on a tax framework for CCIVs, and their investors, that is intended to align with the existing framework for 'attribution managed investment trusts' (AMIT).
- In particular, the tax rules create a 'statutory fiction' so that each sub-fund of a CCIV is deemed, for tax purposes, to be a separate unit trust – the CCIV is (notionally) the trustee of the sub-fund and investors in the CCIV that hold shares referrable to the sub-fund are the beneficiaries under the trust. Generally speaking, investors should be taxed on an attribution 'flow through' basis for income derived by a qualifying sub-fund of a CCIV.
- On the whole, the adaptation of the AMIT rules should provide a more familiar and pragmatic starting point for the taxation of CCIVs. There are, however, certain residual issues – particularly where a sub-fund does not meet the conditions to qualify as an AMIT – which may pose problems in practice, and to that end, the ATO is expected to issue more detailed practical guidance on how some of rules may apply.
- Moreover, the statutory fiction that is created by the tax rules – whereby the 'segregated' assets, liabilities and business of a company are treated, for tax purposes, as a separate trust estate – may have unintended interactions with other existing tax regimes. These will only become clear once the rules have been tested in practice.
- Unlike in earlier iterations of exposure draft legislation, Treasury did not introduce a transitional regime which would allow existing funds tax roll-over relief to restructure into a CCIV. Nor, at this stage, have there have been any announced developments by States or Territories in relation to the availability of stamp duty relief (and whether the statutory fiction created for tax purposes would be respected for stamp duty purposes). The absence of tax and duty relief is likely to be prohibitive for many existing funds wishing to restructure into a CCIV model.
The concept of a new corporate collective invesmtent vehicle was first introduced in November 2009 in the Johnson Report which recommended, among other matters, that in order for Australia's managed funds sector to become more competitive, Australia needed a collective investment vehicle that would provide flow-through tax treatment and would be more internationally recognisable than the current MIS.
The government accepted this recommendation in the 2016-2017 Budget where it announced its intention to produce a new regulatory framework for a CCIV regime, and in September 2017, we saw the first exposure draft legislation for the CCIV.
The CCIV framework was developed having regard to equivalent vehicles used in other jurisdictions while still having features similar to the existing MIS structure. The complexity of integrating a new type of company that effectively has hybrid company and MIS-like features into an existing regulatory landscape was evident in the submissions that were received during the consultation period. In particular, the tax treatment of CCIVs had fundamental issues which required some time to iron out. However, we now have a CCIV framework which, for the most part, has addressed the key concerns in the earlier drafts. This is discussed in more detail below.
Following royal assent, the CCIV regime will commence on 1 July 2022. That said, we are still waiting to see the outcome of the Regulations (consultation closed on 21 January 2022) as well as ASIC policy and ATO guidance on the regime. If you would like to discuss how a CCIV may work for you, please contact us and we can help you navigate the new regime.