AUSTRALIA Law and Practice Contributed by: Andrew Stone, Dhanushka Jayawardena, Andrew Choi and Chris Kinsella, Holding Redlich
Beneficial Ownership Requirements Many of Australia’s treaties require the fund to be the “beneficial owner” of income to claim treaty benefits. This can be problematic where funds operate as conduits passing income to underlying foreign inves - tors. However, Australian alternative funds that retain discretionary investment powers and bear economic risks generally satisfy these beneficial ownership requirements. Specific Treaty Provisions Some treaties contain dedicated investment fund arti - cles, such as the Australia‒UK double tax agreement, providing clearer pathways for fund treaty access. These provisions typically require funds to be: • established and regulated in the treaty jurisdiction; • operated primarily to manage investments for third- party investors; and • subject to appropriate regulatory oversight. MIT Withholding Tax Integration The MIT regime operates alongside treaty benefits, with funds generally entitled to the more favourable lower rate. For foreign investors in Australian MITs, this often means choosing between the 15% MIT withholding rate and potentially lower treaty rates. 4.10 Foreign Account Tax Compliance Act (FATCA)/Common Reporting Standard (CRS) Compliance Regime Australia has implemented both the FATCA and CRS regimes that significantly impact alternative funds, creating comprehensive reporting obligations for US and international tax transparency purposes. FATCA Implementation Australia implemented FATCA through the intergov - ernmental agreement Model 1 framework, making Australian alternative funds “foreign financial institu - tions” subject to US reporting requirements. Fund managers must: • register funds with the Internal Revenue Service (IRS) and obtain “global intermediary identification numbers”; • identify US persons holding direct or indirect inter - ests exceeding specified thresholds;
15% final withholding tax on eligible fund payments compared to the standard rate of 30%. Capital gains on non-taxable Australian property are generally exempt – although recent legislative proposals seek to expand the CGT net for foreign investors disposing of interests in land-rich Australian entities. Sovereign Wealth Funds and Foreign Pension Funds These entities may qualify for specific tax conces - sions, depending on the jurisdiction of the fund under Australia’s tax treaty network, including exemptions from withholding tax and CGT. 4.9 Double Tax Treaties Australian alternative funds generally qualify for double tax treaty relief – although eligibility requires careful analysis of specific treaty provisions and fund structures. Treaty Eligibility and Limitation of Benefits Clauses Resident trusts should generally qualify to access the benefits of a double tax treaty between Australia and a foreign jurisdiction. However, this must be consid - ered on a jurisdiction-by-jurisdiction basis, as Aus - tralia’s treaty network has been updated to prevent inappropriate access to treaty relief through limitation of benefits clauses. These clauses may restrict benefits where funds have significant foreign ownership. These clauses examine: • the nature of the fund’s activities (active versus passive); • investor composition and residence; and • substance requirements in the treaty jurisdiction. By way of example, the interposition of an Australian entity between a foreign investor and foreign oper - ations may be for the purposes of accessing relief under Australia’s tax treaty network. Nevertheless, Australian resident trusts – including those structured as managed investment trusts (MITs) or attribution managed investment trusts (AMITs) – typically satisfy treaty residency tests, as they are established and managed in Australia.
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