The draft guidance may affect crypto asset businesses, investors, and other Australian resident taxpayers. Importantly, wrapping or unwrapping a crypto asset may trigger a taxable event even where the taxpayer retains substantially equivalent economic exposure.

Airdrop arrangements

An airdrop generally involves an issuer distributing established or newly created crypto assets to a recipient. Airdrops may be used to reward the holder of another digital asset, promote a project, remunerate services, or distribute assets without the recipient’s prior knowledge.

TR 2026/D1 addresses the income tax consequences for Australian resident issuers and recipients. It does not apply where crypto assets are transferred in exchange for money or other crypto assets. The proposed treatment depends on the circumstances in which the airdrop occurs.

Crypto asset trading businesses

• Crypto assets held in the ordinary course of a crypto asset trading business may be trading stock.
• An issuer may be entitled to deduct expenditure incurred in providing an airdrop where the general deduction requirements are satisfied.
• A recipient may need to include the value of an airdropped crypto asset in assessable income.

Rewards, hobbies & other airdrops

Where a recipient receives crypto assets as a reward for services, promotional activity, or another income-producing activity, the market value of the assets when derived may be assessable as ordinary income. That value will also be relevant when determining the asset’s cost base or trading stock value for subsequent tax purposes.

An airdrop received in the course of a genuine hobby or recreational activity may not be ordinary income. However, the subsequent disposal of the asset may still have CGT consequences. Whether an activity is a business, income-producing activity, or a hobby depends on the particular facts.

Wrapping & unwrapping crypto assets

A wrapping contract is a smart contract that exchanges a crypto asset for a wrapped equivalent, usually so that it can operate on a particular protocol or platform that it would otherwise not be compatible with.

Under TD 2026/D2, the ATO’s preliminary view is that a taxpayer ceases to own the original crypto asset when it is transferred to the wrapping contract and instead receives a separate CGT asset in the form of the wrapped crypto asset. The ATO’s reasoning is as follows:

• CGT event C2 happens when the taxpayer’s ownership of the original crypto asset ends.
• The capital proceeds are generally the market value of the wrapped crypto asset received.
• The taxpayer compares those proceeds with the cost base of the original asset to calculate any capital gain or loss.
• Unwrapping may trigger a further CGT event when ownership of the wrapped asset ends and the original token is received.

This means wrapping and unwrapping may each create a tax liability despite the taxpayer maintaining broadly equivalent economic exposure before and after the transaction. The draft Determination applies only to the arrangements described in it. Other smart contracts and cross-chain arrangements may have different legal and tax consequences.

Alternative views

TD 2026/D2 acknowledges alternative views, including that the taxpayer may retain a continuing property interest in the original crypto asset or that another CGT event may be more appropriate. The ATO nevertheless concludes that CGT event C2 applies to the arrangements covered by the draft Determination and does not accept that the replacement-asset rollover in Subdivision 124-B is available merely because an economically equivalent wrapped asset is received.

The broader legal context — Poulton v Conrad

The characterisation of crypto assets under Australian property law is also before the High Court in Poulton v Conrad. The appeal was heard on 13 August 2026 and concerns whether Bitcoin can be the subject of a proprietary relationship and, if so, whether it is capable of possession for the purposes of the torts of conversion and detinue. Judgment remains reserved.

The appeal arose from Poulton v Conrad [2025] TASFC 7, in which the Full Court of the Supreme Court of Tasmania dismissed the appeal and endorsed the view that Bitcoin is intangible property capable of possession through control of the relevant private key. That reasoning contemplates a category of intangible property outside the traditional division between choses in possession and choses in action.

The High Court’s decision will not itself determine the income tax treatment of airdrops or wrapping arrangements. However, its analysis of the nature of a taxpayer’s proprietary interest in Bitcoin, and the significance of control through private keys, may be relevant to the legal assumptions underlying the ATO’s view that ownership of an original crypto asset ends when it is wrapped. This issue also goes to the heart of the ATOs position, outlined in TD 2014/26 that bitcoin is property at law and is a CGT asset.

Taxpayers should therefore monitor both the final ATO guidance and the High Court’s judgment.

What taxpayers should do

• Identify the legal and commercial terms of each transaction.
• Distinguish business, income-producing, and private or recreational activities.
• Record the date, quantity, and Australian dollar market value of assets received or disposed of.
• Retain wallet records, transaction hashes, smart contract details, and exchange data.
• Consider both ordinary income and CGT consequences.
• Review whether previous returns are consistent with the ATO’s draft views.
• Obtain advice before entering into significant or unusual arrangements.

How SW can help

SW can assist crypto asset businesses and investors in assessing the income tax and CGT consequences of airdrops, wrapping, and unwrapping, as well as determining whether activities amount to carrying on a business, reviewing valuation methods and transaction records, and identifying transactions that may have triggered previously unrecognised tax consequences.

We can also consider whether prior-year positions should be reviewed and prepare supporting analysis while the ATO guidance remains in draft.

Please contact your SW advisor if you would like to discuss how the draft guidance applies to your arrangements.

Contributors

Stephen Peries | Senior Manager, Tax

The post The ATO’s draft tax guidance on crypto airdrops & wrapping appeared first on SW Accountants & Advisors.

These updates provide further clarity on the 2026–27 Federal Budget reforms, outlining how key measures will operate in practice, as set out in the Government’s tax reform implementation announcement and legislated through the Treasury Laws Amendment (Tax Reform No. 1) Bill 2026. The Bill and explanatory memorandum can be found here.

The latest announcements do not change the core direction of the Budget as highlighted in our FedBud 26 overview and FedBud 2026 follow-up webinar series. However, they begin to address key concerns raised during consultation, particularly in relation to targeted concessions and the treatment of testamentary trusts and capital gains tax (CGT) settings.

Key updates

Expanded access to CGT concessions

• The turnover threshold for the small business 50% active asset CGT concession is proposed to increase from $2m to $10m.
• This is expected to extend eligibility to around 98% of Australian businesses.

New support for startups and innovation

• A proposed Innovative Business CGT Concession introduces a 50% discount for early-stage investors, founders, and employee share scheme participants.
• Consultation is ongoing on how this concession will operate in practice.

Removed the power of the Minister to determine other assets that would retain the 50% CGT discount

• The types of assets that are able to access the 50% CGT discount are now locked in and can not be expanded by the Minister.

Introduction of a 30% minimum tax on discretionary trusts

• From 1 July 2028, a minimum 30% tax is proposed to apply to discretionary trust income.
• This represents a fundamental change to traditional income distribution strategies and is designed to limit income splitting.

Removing the ability for superfunds to use limited recourse borrowing

• In another blow to investors, self-managed super funds (SMSFs) will no longer be able to utilise limited recourse borrowing arrangements to acquire property.
• There are transitional arrangements that allow existing limited recourse borrowing arrangements to continue.

Removing the exemption for salary packaged work related items

• From 1 July 2027, eligible work-related items such as iPads, mobile phones, laptops, protective clothing, and tools of trade will not longer be exempt from fringe benefits tax (FBT) if salary packaged.

Testamentary trusts

• As part of the reform package, the Government confirmed in the media release that income from testamentary trusts will be exempt from the proposed 30% minimum tax, including discretionary testamentary trusts.

However, the supporting consultation materials indicate that this exemption will be subject to conditions and further clarification, as such it will be important to review the legislative detail and guidance before these measures take effect.

For a more detailed breakdown, see our alert on Proposed testamentary trust rules: Understanding the 30% minimum tax exemption.

What this means for clients

These reforms will impact businesses, investors, and families differently depending on their structure:

• Small business owners will benefit from broader CGT concessions and improved cash flow planning opportunities, particularly where business sale or succession is being considered.
• Startups and founders may gain access to new investment incentives, supporting capital raising and growth.
• Trust vehicles in family groups and private business owners will be subject to higher tax from 2028.
• Estate planning strategies will become more complex, with testamentary trusts remaining attractive but subject to new conditions and integrity measures.

Importantly, while most small businesses will continue to access CGT relief, those operating through discretionary trusts will need to reassess whether their current structures remain fit for purpose.

The impact

Overall, the reforms aim to strike a balance between supporting investment and reducing tax barriers for business, while strengthening integrity around trust taxation.

The shift toward a minimum tax regime represents a move away from flexible income splitting and toward more consistent tax outcomes across different structures. For many clients, this will mean:

• reviewing ownership and operating structures before 2028
• reconsidering succession and estate planning arrangements
• identifying opportunities to restructure, particularly during any available transitional relief period
• modelling future tax positions under the new rules.

How SW can help

SW can support you in navigating these reforms with confidence. Our team can:

• assess the impact of proposed changes on your current structure
• review your tax, succession, and estate planning strategies
• identify restructuring opportunities ahead of the 2028 commencement
• provide practical guidance as further legislation and ATO guidance is released.

If you would like to understand what these changes mean for you or your clients, please reach out to your SW advisor.

Contributors

Julia Lee | Business Development & Marketing Executive

The post Discretion advised on the 30% trust tax, $10m CGT lifeline & startup sweeteners appeared first on SW Accountants & Advisors.

Following the Federal Budget announcement, SW and Westpac have partnered to deliver a series of practical sessions designed to help individuals and businesses understand the proposed tax changes and their potential implications.

Before making major decisions based on media commentary, join SW specialists Matt Birrell, John Dorazio, Chris Dexter, Blake Rodgers, and Dale Sloman as they unpack the proposed changes and explain what they may mean for you.

Series program

Session 1 – Discretionary Trust

Gain insight into the proposed changes to the taxation of discretionary trusts, including the introduction of a minimum tax, and what these reforms could mean for business owners, family groups, and succession planning.

Session 2 – Capital Gains Tax (CGT)

Explore the proposed CGT reforms, including changes to the 50% discount and proposed minimum tax measures, and what these changes could mean for investments, business assets and future planning.

Session 3 – Negative Gearing

Understand the proposed changes to negative gearing, including limits on deductible losses for future property investments, and what these reforms could mean for investors, cash flow, and long-term wealth strategies.

Expert speakers

Matt Birrell
Director
SW

Blake Rodgers 
Director
SW

Chris Dexter
Director
SW

Dale Sloman
Associate Director
SW

John Dorazio
Director
SW

The post SW / Westpac | Keep Calm and Listen to Your Accountant appeared first on SW Accountants & Advisors.

The recent Federal Budget has created plenty of headlines and plenty of uncertainty.
Before making major decisions based on media commentary, join our webinar series as our specialists Matt Birrell, Chris Dexter, Blake Rodgers, and Dale Sloman unpack the proposed changes and explain what they may mean for you.

Our team is reviewing the detail, monitoring Treasury, ATO and professional body updates, and assessing the practical implications as further information becomes available.

Some key topics include:

• Negative gearing
• Capital Gains Tax
• Trust tax

Series program

Session 1 – Negative gearing

Tuesday, 9 June 2026

Understand the proposed changes to negative gearing and what they may mean for property investors, including key dates, transitional considerations and why it is important not to rush decisions.

Session 2 – Capital Gains Tax (CGT)

Tuesday, 16 June 2026

Explore the proposed CGT reforms, including changes to the 50% discount and proposed minimum tax measures, and what these changes could mean for investments, business assets and future planning.

Session 3 – Trust tax

Tuesday, 23 June 2026

Learn about the proposed trust tax measures, including the proposed 30% minimum tax on discretionary trust distributions and key considerations for existing trust structures.

Expert speakers

Matt Birrell
Director
SW

Blake Rodgers 
Director
SW

Chris Dexter
Director
SW

Dale Sloman
Associate Director
SW

The post FedBud 2026 follow-up webinar series appeared first on SW Accountants & Advisors.

Treasury has released draft legislation that would materially widen the scope of assets subject to Australian capital gains tax by broadening the definition of taxable Australian real property. This would extend beyond land and buildings to a wider range of land‑connected assets, including infrastructure, energy projects, and certain water rights and entitlements.

The proposals include ‘clarifying’ amendments with retrospective effect and would significantly reshape exit economics for foreign investors – particularly in sectors where value is derived from Australian land or natural resources. While a temporary concession is offered for renewable energy investments, the overall policy direction is toward tougher enforcement, a broader CGT base, and reduced structural certainty for inbound capital.

What is being proposed

A broader CGT net focused on energy and infrastructure assets

The reforms retrospectively (from 2006) expand the definition of Taxable Australian Real Property (TARP) beyond traditional land and buildings to capture assets with a close economic connection to Australian land or natural resources. In practical terms, this significantly widens the CGT net over energy and infrastructure assets, including solar farms, wind projects, battery energy storage systems, and associated transmission assets, many of which have historically been treated as outside the foreign resident CGT regime.

The expanded definition also extends, on a prospective basis, to other land‑connected resource interests such as water rights and water access entitlements, particularly where these are integral to the productive use or value of land.

Federal tax law to override state property concepts (retrospective)

The draft legislation confirms that state and territory property law concepts – such as severance rules or statutory characterisations of fixtures, chattels, or resource rights – do not determine whether an asset is real property for federal CGT purposes.

Tightened rules for indirect interests

The principal asset test for indirect interests in companies and trusts is refined, moving from a point in time (CGT event date) to a 365-day test, reducing the ability to manage CGT exposure through timing or balance‑sheet structuring.

Time-limited concession for renewable energy assets

A targeted concession provides a 50% CGT discount for qualifying disposals of renewable energy assets (and certain indirect interests) by foreign residents, available only until 30 June 2030. While it offers transitional relief for solar, wind, and battery projects, the concession is expressly temporary and does not alter the longer‑term expansion of the CGT base.

The concession does not extend to other natural‑resource interests, such as water rights, and does not mitigate any historical exposure arising from the retrospective asset‑definition changes.

Treaty impact

Treasury proposes to amend the International Tax Agreement Act to ensure that the definition of real property and immovable property in Australia’s double tax agreements (DTAs) will be in line with the proposed domestic definition.

Most of Australia’s treaties already permit Australia to tax capital gains derived from real property situated in Australia, including gains from indirect interests in land‑rich entities. The reforms operate by materially expanding the domestic definition of ‘real property’, meaning that a broader range of assets is more likely to fall within those existing treaty taxing rights. As a result, while treaty protection remains available in principle, fewer assets will qualify for it.

Importantly, the retrospective nature of the domestic law changes will impact investors in various jurisdiction differently, depending on the allocation of taxing rights to income not expressly mentioned in DTAs.

Who is most affected

Investments in Australian land‑connected assets may now be subject to Australian CGT, and may, in some cases, have already been subject to CGT even where they were previously treated as outside the regime.

Taxpayers most affected by these proposals include:

• foreign investors in energy and infrastructure assets, including solar, wind, battery energy storage projects, transmission assets, and other land‑connected infrastructure
• investors holding interests in land‑rich companies, trusts, or stapled structures, particularly where value is driven by fixed assets installed on Australian land
• foreign investors relying on state‑law characterisation or treaty assumptions to support CGT outcomes for land‑connected assets
• funds with near‑term exit, refinancing, or portfolio rebalancing events, where CGT now affects pricing and internal rates of return
• investors in agricultural or farmland assets where water rights or water access entitlements are a significant component of asset value, particularly where those rights are economically integrated with land use or productivity.

Timing and transitional snapshot

The proposed statutory definition of ‘real property’ (including assets with a close economic connection to Australian land) is intended to apply retrospectively to CGT events occurring on or after 12 December 2006, except for water rights, which will apply prospectively.

By contrast, the broader net‑widening reforms to the foreign resident CGT regime generally apply prospectively to CGT events occurring from the quarter following when the Bill receives Royal Assent.

The 50% CGT discount for renewable energy assets applies only from commencement until 30 June 2030 of the legislation and does not provide relief for any historical or retrospective exposure.

How SW can help

We can assist you in understanding the proposed reforms and their potential impact on existing and future investments. In particular, we can help you to:

• map assets and investment structures against the expanded definition of taxable Australian real property
• re‑model exit scenarios on the basis of full Australian CGT exposure
• reassess reliance on treaty protections and state‑law concepts in light of the proposed changes
• identify eligibility and timing constraints associated with the renewable energy CGT concession
• engage early in transaction planning and, where appropriate, prepare submissions as part of the consultation process
• incorporate CGT risk more explicitly into acquisition, holding, financing, and exit decisions.

Contributor

Ned Galloway

The post Foreign investors in the firing line: Treasury’s expanded CGT regime appeared first on SW Accountants & Advisors.

What the draft determination covers

Draft taxation determination (TD 2026/D1) outlines the Australian Tax Office’s (ATO’s) view on the meaning of right to occupy the dwelling under the deceased’s will, as set out in item 2(b) of Column 3 of Subsection 118-195(1) of the ITAA 1997.

The determination considers the right to occupy a dwelling which can have an impact on whether the capital gain or loss can be disregarded under the ‘main residence’ rules.

The right to occupy must be granted under the terms of the deceased will to an individual named in the Will or as a result of a court order.

When the main residence exemption may not apply

The CGT impact of the sale of the dwelling may not be disregarded if the right to occupy occurs through one of the following ways. Careful consideration needs to be given to the rules and examples outlined in the TD.

This includes situations where:

• right to occupy under a separate agreement
• right to occupy using broad trustee discretion
• right to occupy and testamentary trusts. The determination has raised issues that need to be carefully considered for testamentary trusts that affect life and remainder interests.

How SW can help

These rules can be complex, particularly where a right to occupy is intended but the conditions are not met. In those situations, there is a real risk of capital gains tax consequences on the sale of the deceased person’s main residence because the main residence exemption may not apply.

We regularly assist lawyers, administrators and executors of deceased estates to ensure that the estates tax obligations are met. Our Deceased Estate Consulting specialists, Heather Dyke and Taylah Cooke, also review the Estates income tax obligations under subsection 118-195 of ITAA 1997.

Contributors

Heather Dyke – Deceased Estate Consulting

Taylah Cooke – Deceased Estate Consulting

The post Loss of main residence exemption in deceased estates & right to occupy appeared first on SW Accountants & Advisors.

Australian Treasury released a consultation paper detailing proposed changes to the current foreign resident CGT regime which were raised in the last Federal Budget. Central to the proposed changes is:

• expanding the types of assets on which foreign residents are subject to CGT
• amending the principal asset test
• requiring foreign residents to notify the Australian Taxation Office (ATO) of certain disposals of shares and other membership interests

The changes will take effect from 1 July 2025. Owners of Australian renewable assets or land rich entities need to take immediate action to understand the impact of the changes to determine their exit cash flows.

The Current Regime

Currently, foreign residents can disregard capital gains or losses from a CGT asset unless the asset is “taxable Australian property” (TAP). Assets which are TAP include:

• taxable Australian real property (TARP)
• indirect Australian real property interests (IARPI) (e.g. shares or units in entities where the majority of the entity’s market value is from TARP)

A foreign resident will be taken to hold an IARPI where they hold a membership interest in an entity which passes both the:

• non-portfolio interest test (10% interest in the entity)
• principal asset test (PAT) where the market value of the entity’s property that is TARP exceeds the market value of its property that is not TARP

Purchasers of TAP from foreign resident vendors currently must withhold and remit 12.5% of the transaction proceeds to the ATO. Purchasers do not need to withhold this amount where the foreign resident has provided a declaration that the membership interests being disposed is not an IARPI.

The proposed changes in this alert are in addition to the Bill before Parliament to:

• increase the rate of foreign resident capital gains withholding from 12.5% to 15%
• remove the threshold of foreign resident capital gains withholding from 750,000 to nil

Proposed Changes

The consultation identifies 3 main proposed changes which would apply to CGT events occurring on or after 1 July 2025. The key changes are:

• clarification, and a broadening of the type of assets on which foreign residents are subject to CGT
• an amendment to the PAT to a 365-day testing period
• the additional requirement that foreign residents notify the ATO before disposing of shares and other membership interests exceeding $20 million

Broadening the types of assets

The change expands the CGT base for foreign residents to capture assets which have a “close economic connection to Australian land and/or natural resources”.

The proposed amendments would expand the following assets as TAP assets:

• leases or licences to use land in Australia
• water entitlements in relation to Australian land
• infrastructure or machinery installed on Australian land (e.g. solar panels, wind farms, batteries, rail networks or heavy machinery installed for use in mining operations etc.)

The proposed changes will significantly expand the CGT net for assets held by foreign residents and in particular tax non residents on renewable energy projects. Non residents are currently not subject to tax on these assets.

Amendment of the Principal Asset Test

The changes would extend the PAT to ensure that the market value of an entity’s property that is TARP does not exceed the market value of its property which is not TARP during the 365 days before the CGT event.

This amendment may prevent foreign residents from avoiding CGT by planning the sale of their membership interests once the underlying entity no longer meets the TAP. By extending the PAT to the preceding 365-days, the ability of taxpayers to manipulate the asset composition of the entity (e.g. through a corporate restructure immediately prior to the sale of membership interests) will diminish.

Some opportunities may arise from the expanded PAT such as non residents using capital losses previously foregone.

Foreign resident vendor ATO notification requirement

All foreign resident vendors must notify the ATO of a sale of shares exceeding $20m under the proposals – even where the shares are not an interest in Australian real property.

The ATO would need to be notified by the vendor prior to a set review period before the sooner of the relevant CGT event or settlement.

This change aims to prevent foreign residents from incorrectly declaring that their membership interest sale is not subject to CGT by giving the ATO visibility over such transactions. This is a compliance measure and would carry administrative penalties for false or misleading declarations.

Where the ATO disagrees with vendor’s declaration, the ATO can make a recommendation to the vendor and the purchaser to withdraw the declaration, such that withholding would apply to the transaction.

How SW can help

The proposals will take effect from 1 July 2025. Owners of Australian renewable assets need to take immediate action to understand the impact of the changes, determine the impact on their returns and reevaluate the timing of any exit strategy. 

SW will continue to monitor the developments. Reach out to your SW contact to discuss how the proposed changes may affect your investment of transaction.

Contributors

Ned Galloway

The post Foreign Resident CGT | New tax on renewable energy appeared first on SW Accountants & Advisors.

AusNet Services Limited faced a distinct challenge in trying to extricate themselves from a previously chosen rollover relief election, when hindsight showed that a different approach could lead to greater tax benefits. Though AusNet Services Limited lost the case, the decision may well assist taxpayers seeking to rely on CGT rollover relief more generally.

Background

The Ausnet Group consisted of the following entities which were stapled:

• AusNet Services (Transmission) Limited (Transmission).
• AusNet Services Finance Trust (Finance).
• AusNet Services (Distribution) Limited (Distribution).

After a separate dispute with the Australian Taxation Office, it was decided to interpose a new entity above the AusNet Group and form a new tax consolidated group (TCG).

As shown in the above ‘post restructure’ diagram, after the 3 companies were unstapled, AusNet Services Limited (AusNet Services) acquired each of the 3 companies under a scrip-for-scrip exchange in the following order:

1. Transmission,
2. Finance, then
3. Distribution.

The original intention was that CGT rollover would be sought for the interposition of the new head company under Division 615 of the Income Tax Assessment Act 1997.  On the same day as the interposition, AusNet Services elected to apply Division 615 (noting this is a separate election that automatically applies for the shareholders where the new interposed entity is the head company of a TCG). This election was supported by the Class Ruling CR 2015/45 (link) that AusNet Services sought from the Commissioner.

The issue with a Division 615 rollover is that the cost base of the shares that Ausnet Services (the interposed entity) holds in Distribution is equal to the cost base of the Distribution’s assets net of liabilities. Where there is significant value in the goodwill of Distribution, the ACA will be skewed to the goodwill, rather than other assets which have tax benefits.

Because of the rules that apply under Division 615 to determine the cost base of shares acquired in the 3 companies, AusNet Services came in time to experience what might be described as ‘rollover regret’.  With the benefit of hindsight, AusNet Services came to realise that the effects of the Division 615 were disadvantageous for the group in relation to the acquisition of Distribution.  Unfortunately, the relevant legislation explicitly states that once the decision to apply Division 615 is made, it cannot be revoked. The only recourse for amendment was therefore to contend that Division 615 should not have been applicable to Distribution in the first place.

Rollover relief and ‘nothing else’

Whilst there were several arguments raised by AusNet Services as to why rollover relief under Division 615 should not apply, for the purposes of this alert we will be focusing only on the argument that is pertinent to a number of tax rollover relief provisions, which will have broad implications. 

The argument boils down to the following question:

• Was there a scheme for reorganising the affairs of Distribution under which the original shareholders received shares in Ausnet Services for disposing of their shares in Distribution (and ‘nothing else’)?

Notably the ‘and nothing else’ requirement is an important precondition for rollover relief in several other rollover provisions beyond Division 615, including:

• Subdivision 124-E – exchange of shares in the same company or units in the same trust;
• Subdivision 124F – exchange of rights or options in a company or unit trust;
• [IK1] Subdivision 124Q – exchange of stapled ownership interests for ownership interests in a unit trust;
• Division 125 – demerger relief.

Arguments of the case

AusNet lost in this case however the narrow construction of the and ‘nothing else’ condition is a win for taxpayers.

Key takeaways

• The key outcome is essentially that certain rollovers may have broader application than what was previously thought to be the case (at least by the Commissioner). The Court’s concluded is that the and ‘nothing else’ requirement may not be as challenging as the Commissioner has to date indicated.

How SW can help

If you are considering a group restructure and/or have any queries on the contents of this article, please contact our expert team here at SW.

Contributors

Ned Galloway

Kate Wittman

The post AusNet decision | CGT Rollover relief & ‘nothing else’ appeared first on SW Accountants & Advisors.

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

International recognition

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

Rollover relief

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.

Tax losses

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.

Trust income

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.

Click here to find out more about how we work with fund managers and financial services business across the sector.

Contributors

Carmelin De Francesco, Senior Manager, Tax

The post Corporate Collective Investment Vehicle Regime (CCIV) appeared first on SW Accountants & Advisors.