The Australian Investment Environment
Australia’s New CCIV, or Corporate Collective Investment Vehicle, was introduced on the 1st of July 2022. This new legal structure is more likely to encourage foreign investors than the incumbent trust-based managed investment regime that operates in Australia.
The Federal Government and Treasury hope CCIVs will increase foreign investment into Australian funds. It is also hoped that on a global basis, Australia’s $2.5 trillion Funds Management Business will attract talented employees and be a lot more competitive.
Of the $2.5 trillion in funds managed in Australia, only around 5% comes from overseas. The CCIV regime is expected to have a lower operational cost and provide better economies of scale for foreign and domestic investors.
Australia already provides a stable economic environment for inward foreign investment with a robust regulatory framework in the financial sector.
The CCIV Umbrella Fund
The CCIV is a new Australian investment vehicle that is structured as a public company. Like other companies, it is limited by shares and operates like an umbrella fund with sub-funds beneath it that hold various asset types.
This umbrella company structure supports the creation of ‘single responsible entity’ sub-funds. Each sub-fund has segregated assets and liabilities and is treated as a separate entity for tax purposes. The CCIV can pass on franking credits, discounted capital gains and foreign income tax offsets to investors.
This means that Foreign CCIV investors are taxed on their proportionate share of the sub-fund’s taxable income. This is despite the fact that the CCIV is a corporate legal entity that is able to pay a dividend. As well as transacting with each other, they can also invest in each other. Many off-shore collective investment entities and vehicles also work this way.
While the Managed Investment Scheme (MIS) will continue to have a place within the Australian managed funds space, it will rapidly become clear that momentum will shift towards the new CCIV investment vehicle.
Overseas Umbrella Funds
The Australian CCIV was built after overseas versions of this umbrella fund were already well road tested.
- · The Open-Ended Investment Company (OEIC) was established in the United Kingdom in 1997. There are just under 4000 of these in operation now.
- · The Irish Collective Asset-Management Vehicle (ICAV) in Ireland was rolled out in 2014. There are now around 400 of these.
- · Hong Kong has had its Open-Ended Fund Company (OFC) since 2018, and there are 200 or so of these now.
- · Singapore’s version of CCIV is called Variable Capital Company (S-VACC). Since the introduction of the VACC in mid-2020, just over 400 of these have been established, with many of these being used for Family Offices.
With Treasury having looked at the best of overseas structures and experience before drafting legislation means that utilising the CCIV structure for future Australian investment fund opportunities should not be overlooked.
If you are interested in the taxation effects of a CCIV please check out this video.