AUSTRALIA Law and Practice Contributed by: Andrew Stone, Dhanushka Jayawardena, Andrew Choi and Chris Kinsella, Holding Redlich
documents of the fund, as well as via disclosure and fully informed consent of investors. Fund managers may owe fiduciary obligations to the trustee or to partners in the fund, depending on the terms of the applicable management agreement and the broader circumstances of the engagement. This
expenses incurred in providing these services. How - ever, no input tax credits are available for expenses incurred to arrange acquisitions of interests in man - aged investment schemes, provide certain financial advisory services, or issue or deal in certain financial products. 3.5 Rules Concerning Permanent Establishments Australia does not provide broad exemptions to pre - vent alternative funds with Australian managers from establishing a permanent establishment or taxable presence in Australia. However, several strategies are used to reduce the risk of a permanent establishment arising. Distinctions Between Trustees and Managers The most critical protection stems from the way tax residency for Australian trusts arises. Where an Aus - tralian entity acts solely as an investment manager (rather than a trustee) for a foreign fund, the fund itself escapes Australian tax residency. The manager pro - vides services to the fund but in a way that does not create an agency relationship, which would otherwise result in a deemed permanent establishment. Safe Harbours for Service Providers Australian taxation law recognises that independent service providers do not necessarily give rise to per - manent establishments for their foreign clients. Fund managers operating at arm’s length, charging market rates, and not holding decision-making authority over fund assets generally avoid creating permanent estab - lishments for the funds they manage. Australia’s extensive double tax treaty network pro - vides further protections by raising the threshold at which permanent establishments arise. Many treaties include specific investment manager exclusions or higher thresholds that protect funds from inadvertent Australian tax exposure. Despite these protections, risks remain where Austral - ian managers exercise broad discretionary powers, hold fund assets, or operate beyond pure advisory roles. The Australian Taxation Office’s recent scru - tiny of alternative fund structures suggests increased attention to substance-over-form analysis.
duty may also be owed to investors. 3.4 Tax Regime for Managers Corporate Tax
Alternative fund managers in Australia are typically structured as Australian proprietary companies and subject to the standard corporate tax rate of 30% (or 25% for eligible small business entities with turnover under AUD50 million). Management fees, administra - tion fees, and other recurring income are taxed as ordinary business income. Foreign fund managers operating in Australia must consider the interaction between domestic taxation and their home jurisdiction obligations. Franked divi - dends paid to foreign shareholders will not be subject to further Australian tax. To the extent dividends are unfranked, Australian dividend withholding tax applies at 30% but this can be reduced to nil, depending on where the foreign shareholder is based and the own - ership structure. Goods and Services Tax (GST) Australian fund managers face complex GST obliga - tions that vary significantly based on their activities, client base, and fund structures. Fund management services are generally subject to a 10% GST, making managers liable to charge GST on management fees, performance fees, and other advisory services. However, critical exemptions apply for services provided to widely held unit trusts and other qualifying investment vehicles. Services provid - ed in relation to the “management of eligible invest - ment business” may qualify for a GST exemption. This benefits managers of wholesale funds where the underlying investments qualify as “eligible investment business”. Fund managers can often claim full input tax credits (100%) or reduced input tax credits (75% or 55%) on
17 CHAMBERS.COM
Powered by FlippingBook