Second Reading SpeechMr Shorten (Minister for Financial Services and Superannuation and Minister for Employment and Workplace Relations)
In January 2010, the Australian Financial Centre Forum released a report titled Australia as a Financial Centre.
This has become known as the "Johnson Report" in recognition of Mark Johnson's leadership of the Forum and his subsequent leadership of the Australian Financial Centre Task Force.
The Johnson Report concluded that Australia had arguably the most efficient and competitive financial services in the Asia Pacific. This is reflected in the fact that, even in this era of the mining boom, the financial services sector is the largest single contributor to GDP of any sector in the economy.
Despite these strengths, the Johnson Report observed that the sector could benefit from becoming more export oriented.
One of the key initiatives aimed at making the sector more outward oriented was the Investment Manager Regime.
This initiative will put Australian fund managers in a stronger position to manage not just funds being invested in Australia - but funds invested in other countries. This will maximise the benefits flowing to the Australian workforce and Australian consumers of financial products.
In addition, the initiative will reduce tax uncertainty for widely held foreign funds investing in passive Australian investments. This legislation contains two schedules, which contain the first two elements of the Investment Manager Regime.
Schedule 1 will prescribe the tax treatment of conduit income of widely held foreign funds. These amendments will apply to the 2010-11 and later income years.
The amendments are designed to ensure that the complex tax issues that can currently arise do not operate to discourage foreign funds from engaging the services of an Australian intermediary, for instance an investment manager.
These amendments will ensure that investment income of a foreign entity is not subject to tax in Australia simply because it engages an Australian advisor, where that income would not otherwise have an Australian source.
Schedule 2 will address the uncertainty surrounding the impact of United States accounting standard ASC 740-10 - the amendments are often referred to as the FIN 48 measures. These measures will apply to the 2010-11 and earlier income years.
The amendments in Schedule 2 remove the potential for uncertainty regarding the Australian tax treatment of certain foreign fund income and will allow foreign investors to move forward in their arrangements with confidence of their Australian tax position relating to earlier years.
The proposed amendments are designed to clarify the taxation treatment of certain income of foreign funds which have not lodged a tax return or have had an assessment made of their income tax liability.
Where the conditions of the provisions are met, certain types of investment income and gains will be exempt from Australian tax. In addition, losses or outgoings in respect of certain investments will be disregarded.
Full details of the measures in this Bill are contained in the explanatory memorandum.