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New Corporate Collective Investment Vehicle (CCIV) regime to attract foreign investment

Australia's lack of an internationally recognisable corporate collective investment vehicle has resulted in missed opportunities for investment from overseas, as foreign investors are less familiar with unit trusts (i.e. managed investment trusts) which are Australia's current preferred collective investment vehicle. The fact that trusts are less common overseas has contributed to lack of understanding by foreign investors and trust structures can often be perceived as a riskier investment.

To this end, the Corporate Collective Investment Vehicle Framework and Other Measures Act 2022 (Act) has recently been passed (with a commencement date of 1 July 2022) to introduce a corporate collective investment vehicle (CCIV) that will offer an internationally recognisable investment product. The objective is to increase the competitiveness of Australia's managed funds industry internationally and attract more foreign investment.

Ari Armstrong, Maddocks Lawyers

What is a CCIV?

A CCIV is a new type of company (limited by shares) that is used for funds management/passive income activities. As a type of company, a CCIV has most of the powers, rights and characteristics of other companies. However, unlike other companies, a CCIV has a single corporate director and must not have any other officers or employees (other than a director or a receiver, liquidator or a trustee or other person administering an arrangement between the CCIV and someone else). The corporate director is a public company with its own officers and employees. The corporate director also holds the AFSL authorising it to operate the business and conduct the affairs of the CCIV.

A CCIV is an umbrella vehicle that encompasses one or more sub-funds (see below). CCIVs may issue shares and debentures to investors, with each type of security issued by the CCIV being referable to one particular sub-fund of the CCIV. Each member is taken to have a vested and indefeasible interest in their respective share of the income and capital of the sub-fund trust.

A CCIV may be either 'open-ended' (i.e. with no limit to issuing, redeeming or repurchasing) or 'close-ended' (such as listed CCIVs) whose share capital is fixed or limited.

What are the sub-funds of a CCIV?

Each sub-fund is a distinct and protected part of the CCIV's business which must be segregated from any other sub-fund in the same CCIV. The assets and liabilities of the CCIV must be allocated to the CCIV's sub-funds. Each shareholder in a CCIV has an traceable interest in a specific sub-fund.

Liquidation/external administration applies on a sub-fund-by-sub-fund basis. A CCIV, as a whole, cannot be wound up, however a CCIV must be deregistered by ASIC after the CCIV's last sub-fund has been deregistered. This is the only way a CCIV may be deregistered.

Each sub-fund of the CCIV operates separately from the other sub-funds of the CCIV and may offer investors a different investment strategy. This allows for funds be to pooled together under one umbrella vehicle, which will assist fund managers to build capacity and economies of scale. Each sub-fund is a distinct and siloed part of the CCIVs business, however cross-investment between different sub-funds of a CCIV has been permitted, subject to certain restrictions.

What's the difference between a wholesale CCIV and a retail CCIV?

A CCIV may be either a retail CCIV or a wholesale CCIV. A retail CCIV is subject to an additional regulatory framework designed to protect less sophisticated, retail investors. For instance, a retail CCIV must have a compliance plan and a compliance plan auditor. Wholesale CCIVs, on the other hand, are subject to a more limited regulatory framework, reflecting investors' capacity to negotiate bespoke arrangements with fund providers.

A CCIV is considered to be a retail CCIV, if it has at least one member who is a:

  • 'protected retail client'. A person is a 'protected retail client' if they acquire securities in the CCIV as a retail client, unless the person is 'associated' with the CCIV, or where the person acquires the security under the small scale personal offer exemption;
  • a 'protected client under a custodial arrangement'. A person is a 'protected client under a custodial arrangement' if the person acquires the securities in the CCIV under a 'custodial arrangement', but would have been a retail client if there was an equivalent direct acquisition of the securities by that person, and the person is not associated with the CCIV; or
  • a 'protected member of a passport fund'. A person is a 'protected member of a passport fund' where the sub-fund is an 'Australian passport fund' and the person became a member after the sub-fund became an Australian passport fund or on the expectation that the sub-fund would become an Australian passport fund.

If a wholesale CCIV meets the retail CCIV test, it must lodge a notice in the prescribed form within two business days of meeting the test. A retail CCIV that ceases to meet the retail CCIV test may notify ASIC that it wishes to become a wholesale CCIV, but it is not obliged to.

What is the tax treatment of a CCIV

The Act provides for flow-through tax treatment for investors in a CCIV by deeming a trust relationship to exist between a CCIV, the business and assets referrable to a sub-fund and the relevant class of members. This deeming operates for the purposes of all taxation laws (unless expressly excluded).

This aligns the tax treatment for an investor into a CCIV with the existing tax treatment for an investor in an Attribution Managed Investment Trust (AMIT) under the existing regime. One of the major benefits of AMITs is that they are able to use an attribution method of tax. The tax characteristics relating to income and offsets are retained when an AMIT trustee attributes an amount to a member. Accordingly, the tax consequences for the member should generally be the same as if they had received the income directly. This 'flow through' tax treatment will now be available to shareholders in a CCIV notwithstanding that the CCIV is a corporate entity and which pays dividends

Where a CCIV sub-fund trust satisfies, the AMIT eligibility criteria (as modified to suit the CCIV regime), it will automatically be treated as an AMIT. The AMIT eligibility criteria are broadly as follows:

  • passing the widely held test;
  • not being closely held;
  • being limited to carrying on passive income activities; and
  • being an Australian tax resident.

If a sub-trust of the CCIV fails to meet the AMIT eligibility criteria, the CCIV sub-fund trust will be taxed in accordance with general trust provisions (though if a CCIV sub-fund trust fails to meet the AMIT requirements due to temporary circumstances that are outside its control, it can continue to be treated as an AMIT in relation to the income year if it is fair and reasonable to do so).

More information from Maddocks

For more information, contact Maddocks on (03) 9258 3555 and ask to speak to a member of the Commercial team.

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Lawyer in Profile

Andrew Wright
Andrew Wright
Partner
PH: 61 3 9258 3362

Andrew is a Partner in the Maddocks Tax & Revenue team.

Andrew provides advice on:

  • structuring of businesses and transactions;
  • mergers and acquisitions;
  • corporate reorganisations;
  • sale of businesses;
  • fixed and discretionary trust deeds; and
  • international tax structuring.

His advice covers both direct and indirect tax considerations.

Prior to joining Maddocks, Andrew was a tax consultant at a Big 4 Chartered Accounting Firm.