AUSTRALIA Law and Practice Contributed by: Michael Lawson, Nicole Brown, Lizzie White and Tamaryn Leach, MinterEllison
Other Operational Considerations Other operational obligations and requirements that will need to be considered include: • anti-money laundering and counter-terrorism financing; • insider dealing and market abuse; • short selling; and • derivatives transaction reporting. 3.5 Fund Finance There continues to be strong growth and com - petition in the Australian fund financing market, providing greater accessibility to retail funds looking to borrow or leverage their portfolio. The Australian domestic banks tend to be the key players; however, offshore commercial and investment banks are increasingly active in the fund financing market. The facilities are usually provided on a bilateral basis, as opposed to a syndicated basis, and the lender will take some form of security (for exam - ple, over the assets of the fund or in the form of a guarantee). The fund financing documenta - tion will also often impose certain limitations and restrictions on the use of the borrowings. In terms of the fund documentation itself, a key consideration will be to ensure that the constitu - tion of the fund permits the responsible entity to borrow and grant security over the fund’s assets. 3.6 Tax Regime Overview of Tax Regime The tax regime applying to Australian retail funds structured as a unit trust is comprehensive and complex and should be carefully considered when establishing a fund in Australia. The Aus - tralian Taxation Office (ATO) is responsible for administering the federal tax laws in Australia.
Typically, the income and gains of a trust are subject to flow-through tax treatment, which means that the taxable income of a trust is taxed in the hands of the investors and not the trust itself. Therefore, investors are taxed directly on their pro rata share of the trust’s income as well as gains arising from the disposal of any invest - ment of the trust and on any disposal of their interests in the trust. For Australian income tax purposes, different kinds of investors are subject to different taxa - tion principles and taxation rates – for example: • corporates are taxed at the corporate tax rate (generally 30% unless a complying small business): • individuals are taxed at the relevant marginal tax rate (the highest being 45%); and • complying superannuation funds are taxed at a rate of 15%. Tax concessions may be available for foreign pension funds and sovereign wealth funds. Where an Australian resident investor has derived a capital gain from its investment in a trust (ie, as a result of a disposal of either a capi - tal asset by the trust or disposal of an interest in the trust), the capital gain could be subject to a discount where the relevant asset has been held for at least 12 months and the investor is a qualifying taxpayer (ie, not a company). Where a non-resident investor has derived a capital gain from its investment in a trust (ie, as a result of either disposal of a capital asset by the trust or disposal of an interest in the trust), the capital gain could be exempt if the relevant asset is not taxable Australian property (TAP). TAP is generally limited to interests in land and certain
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