US-based funds and FIN 48 issue: law to be amended

On 17 December 2010, the Assistant Treasurer announced that the Government will implement changes to provide certainty of the tax treatment for foreign funds that have invested in Australia. The Assistant Treasurer said this will address a key area of investment uncertainty for US-based fund managers investing in Australia.

The Assistant Treasurer said US-based fund managers investing in Australia may be adversely affected by the recent application of certain US accounting rules to managed funds, widely referred to as "FIN 48". Under these rules, funds are required to make disclosures in their financial accounts in relation to uncertain tax positions, including for prior income years.

While those rules do not directly affect Australian tax outcomes, Mr Shorten said dealing with the requirements has underlined to foreign investors the uncertainty of Australia's tax rules, as identified in the Australian Financial Centre Forum Report, Australia as a Financial Centre: Building on our Strength (the Johnson Report).

Mr Shorten said the proposed changes will act to improve investor certainty in relation to past transactions, where the impact of the accounting rules is greatest. Where a foreign managed fund has not lodged a tax return for the 2009-10 or prior income years in respect of certain investment income of the fund, the Tax Office will not be permitted to raise an assessment in respect of that income, except where the fund lodges a tax return disclosing such income. The amendments will take effect from 17 December 2010.

"I will consult closely with the Financial Centre Taskforce (formerly the Australian Financial Centre Forum) and industry representatives in designing legislation to implement these changes, including appropriate integrity rules," Mr Shorten said.


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