Corporate Collective Investment Vehicle Regime (CCIV)
Now that we are in the 2023 financial year, it is important for fund managers to consider the opportunities of the Corporate Collective Investment Vehicle Regime (CCIV), which came in to effect from 1 July 2022, when considering the structure of new and even existing investments.
The CCIV regime provides a new type of corporate flow-through entity, which is an incorporated company but which, through a set of deeming principles, is effectively treated as a trust for all tax law purposes.
The purpose of the regime is to increase the competitiveness of Australia’s managed funds industry by creating a flow through corporatised entity which is more widely recognised internationally and draws on characteristics of similar regimes currently utilised in Singapore, UK, Hong Kong and elsewhere.
A further objective of the CCIV tax framework is to align the tax treatment of CCIVs and their members with the existing tax treatment of general trusts and attribution managed investment trusts (AMITs). Where a CCIV sub-fund trust:
- meets the AMIT eligibility criteria, it will be taxed as an AMIT under the attribution flow-through tax regime
- fails to meet the AMIT eligibility criteria, the CCIV sub-fund trust will be taxed in accordance with general trust provisions, which is consistent with the current outcomes for AMITs
Characteristics of a CCIV
A CCIV is a legal form company limited by shares, the income of which is distributed by way of legal form dividends. The company must be registered with ASIC under the new chapter 8B of the Corporations Act 2001.
The company has a sole corporate director which must be a public company that holds an Australian Financial Services License (AFSL). The company must have at least one sub-fund which has at least one member and it can either be a wholesale or retail sub-fund.
The CCIV will effectively operate as an umbrella vehicle of separate sub funds, with each sub fund potentially providing a different investment offering, and each sub-fund potentially having different members. The sub-funds are not separate legal entities but operate as cells within the CCIV.
A CCIV is deemed to be the trustee of each sub-fund, each of which is a separate entity for income tax purposes. The sub-funds, subject to meeting relevant requirements, may be treated as AMITs.
The constitution of the CCIV will be its primary governing document and will contain different provisions depending on whether the CCIV is a retail or wholesale fund.
While a CCIV is not a MIS, there are separate requirements which build in similar protections for CCIV investors, similar to those available to MIS entities.
Advantages of a CCIV
The CCIV regime draws on characteristics of similar regimes which operate in other jurisdictions. Given many international investors are not familiar with the unit trust structure widely adopted in Australia in relation to Funds, the CCIV increases international competitiveness in the funds management space by creating an entity which is more widely recognised internationally and may therefore be more attractive to international investors.
Segregation of assets and liabilities
Whilst each sub-fund is not a separate legal entity, the assets and liabilities are segregated from each other. The assets of each sub-fund can legally only be applied for purposes relating to that specific sub-fund.
Flow through taxation
The income earned by the CCIV sub-fund trusts will retain its character when received by investors, such that investors will effectively be taxed as if they hold assets of the trust directly (subject to the usual tests such as Division 6C). Whilst the CCIV pays legal form dividends, the income received by investors will not be taxed as dividends but rather taxed as distributions from a trust.
Fixed entitlement to income and capital
Investors will be deemed as having a vested and indefeasible interest in the income and capital of the sub fund-fund trusts. This is relevant for the utilisation of trust losses and application of franking credit provisions.
Concessional withholding rates
If a sub-fund qualifies as a MIT, distributions to investors who reside in countries that have an Exchange of Information Agreement with Australia may be subject to the lower concessional withholding rate of 15% on certain types of income (excluding interest, dividend and royalty income).
Capital account election
In addition to the above, if the sub-fund trust qualifies as a MIT it can make an election to treat certain assets as on capital account. This will mean that in most cases asset disposals will be treated as capital gains which may be a more favourable tax outcome for both resident and non-resident investors.
Disadvantages of a CCIV
There are currently no specific rollovers or concessions which would allow existing fund structures to seamlessly convert to the CCIV regime without any income tax implications. Existing CGT roll-overs may apply in some cases and should be considered accordingly. This limitation may make it difficult to transfer existing “in the money” investments to the CCIV regime.
Currently, there are no specific provisions which allow the transfer of revenue or capital losses from an existing structure into a CCIV structure. This means an entity converting to a CCIV would currently not be able to retain any existing tax or capital losses.
Under the CCIV regime, the definition of income in relation to the sub-fund trusts is broadly determined based on accounting profit of the trust. The limited flexibility in defining income could result in unintended and unfavourable income tax consequences with respect to income earned by the sub-fund trusts.
Duty & land tax
There is yet to be any guidance released by the various States in relation to the treatment of CCIV entities from a duty or land tax perspective.
How SW can assist
There will be cases where the CCIV regime will provide clear benefits to fund managers and to investors. These will predominantly relate to where the fund is either attracting foreign investment, or where the fund is designed to invest in foreign assets (even if the investors are domestic).
Given the challenges in converting from a traditional trust structure to a CCIV, the CCIV regime should be considered even if these international factors are not present at the inception of the fund but are recognised as possibilities in later years.
Reach out to our team to discuss whether the CCIV regime is appropriate for your fund.
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Carmelin De Francesco, Senior Manager, Tax