Brendon Lamers and Matt Ervin explore the new Corporate Collective Investment Vehicle regime as an alternative to a Managed Investment Trust.
In late August Treasury released for consultation Exposure Draft legislation to implement the core provisions of the Corporate Collective Investment Vehicle (CCIV) regime.
Corporate structures are well understood internationally and the CCIV is a welcome initiative to create a potential alternative for some Australian investments outside of traditional trust structures. Trusts are often not well understood by non-residents and this new regime could simplify some inbound Australian investment structures.
These measures are the first stage of a new Collective Investment Vehicle (CIV) regime that will be expanded to limited partnerships in 2018. The Limited Partnership CIV is likely to be of greater interest to wholesale private equity, real estate and infrastructure structures, however as legislation for that expansion is likely still some time away the CCIV may be an attractive interim measure.
The current suite of draft legislation does not contain any tax-specific provisions relating to the new regime, beyond noting that CCIVs should be taxed in a similar manner to a Managed Investment Trust (MIT).
The MIT regime is well-established as the preferred structure for investment into many Australian asset classes, and aligning the CCIV to the MIT requirements will provide taxpayers greater flexibility when structuring their Australian investments. However, there are limitations to the MIT regime that will not be mitigated by a corporate vehicle.
In particular, MITs are unable to control trading businesses which limits their attractiveness in the private equity and venture capital industry. The suitability of the CCIV for investment into infrastructure and certain real estate assets will also be complicated by Treasury’s ongoing review into stapled structures.
A corporate structure also presents challenges, as amendments to the Corporations Act will be needed to allow the distribution of free cash as ‘tax deferred’ distributions. This will be critical to the viability of the CCIV for infrastructure and wholesale property investment.
Whilst the new CCIV regime is a welcome initiative, overcoming some of these limitations will be critical to its widespread adoption. We encourage all participants likely to avail themselves of these measures to get involved now, either directly or through KPMG.