A new corporate structure for funds managed with international investors

the Companies Act 2001 (Cth) (Act) was modified to introduce a new type of company by the Collective Investment Vehicles Framework and Other Measures Act 2022 (Amending law). These amendments, which will come into force on July 1, 2022, introduce the Corporate Collective Investment Vehicle (CCVI), an entity specifically designed for fund management.

CCIVs aim to be more recognizable legal structures to overseas investors than the typical trust-based managed investment scheme that operates in Australia. The federal government hopes that CCIVs will increase foreign investment in Australian funds.

An overview of CCIVs

CCIVs are a new type of partnership limited by shares with a single corporate officer.1 The director must be a public company with an Australian Financial Services License. In addition, a CCIV must have a constitution, at least one compartment and must mention that it is a CCIV in its name.2

CCIVs have at least one compartment, each of which can offer different investment strategies. It is important to note that the assets and liabilities of each sub-fund are separated from each other, although they are not separate legal entities. However, the sub-funds are authorized to invest in each other.3 Each sub-fund must be registered with the ASIC, either at the time of registration of the CCIV or, if sub-funds are added later, when the sub-funds are formed. A CCIV may issue shares if the rights attached to the shares relate to the assets of a single sub-fund of the CCIV.4

CCIVs have some key differences from managed investment funds and other companies:

  • CCIVs do not involve the use of trusts;5
  • The CCIVs have no managers or employees other than their corporate officer;6 and
  • the superseding rules of the Act do not apply.7

Wholesale or retail CCIV

Similar to the classification of managed investment funds, CCIVs can be classified as retailers or wholesalers.8 However, unlike schemes, all CCIVs must be registered, whether retail or wholesale.9

Recall that wholesale managed investment funds are not required to be registered, making them potentially more attractive from a regulatory compliance perspective than CCIVs in certain circumstances.

The criterion for determining whether a CCIV is a retail CCIV is whether at least one member of the CCIV is:

  • a protected retail customer;
  • a client protected under custody agreements; Where
  • a protected member of a passport fund.ten

These categories of persons are defined in s1222K of the Act.

The distinction is important because retail CCIVs are subject to greater regulatory scrutiny. For example:

  • the executives and employees of the corporate officer have additional functions;11
  • member approval requirements for related party transactions;12
  • content requirements for constitution;13
  • the requirement to have a compliance plan, similar to that of a managed investment scheme;14 and
  • limitations on the corporate officer’s right to acquire CCIV shares.15

Only single-compartment retail CCIVs may be listed on an exchange. Wholesale CCIVs or retail CCIVs with multiple compartments may not be listed.16

Governance

Meetings of CCIV members are regulated in the same way as those of a registered plan.17 However, CCIVs have unique rules for meeting directors, as they only have one corporate director. Generally, Part 2G.1 of the Act, which governs directors’ meetings, does not apply to a CCIV.18

At least half of the directors of the corporate officer of a commercial CCIV must be external directors. Outside directors are directors who have not, within the past two years, been an employee or manager of the company director, or have not dealt substantially with him, and who have not no material interest in the company director either.19

Corporate directors are replaced in the same way as the sponsoring entity of a registered plan. The director may retire, in which case a meeting of members must be called for the selection of a new director, or be replaced by his members by special resolution at a meeting of members.20

CCIV taxation

Similarity to investment trusts managed by attribution

The amending law also modifies the income law Tax Assessment Act 1997 (Cth) to create the CCIV tax regime. Similar to the taxation of investment trusts managed by attribution (AMIT), CCIVs are taxed on a flow-through basis. The CCIV may allocate amounts of taxable income, exempt income, non-exempt non-taxable income and compensation to its members, while maintaining the character of these amounts.21 As a result, income is only taxed at the individual member tax rate and the CCIV generally does not pay corporation tax.

In order to benefit from this crediting treatment, the compartment concerned must meet a modified version of the AMIT eligibility criteria. At a high level, the modified criteria are:

  • the CCIV is an Australian resident;
  • the sub-fund is used for collective investment purposes by pooling the contributions of its members in return for the right to the profits produced by these contributions;
  • the CCIV meets the requirement of “capital distribution”, which relates to the number and nature of its members;
  • the CCIV satisfies the “close participation” requirement, which relates to the relative interests in the CCIV of its members; and
  • the CCIV does not exercise or control any stock/unit trading activity.22

As a CCIV is not a trust, the usual requirement for an AMIT to be a managed investment scheme does not apply. In addition, unlike managed investment funds, no choice has to be made for a sub-fund to be an AMIT.23

Shell trusts

CCIVs are a new type of partnership limited by shares, however, so that members of CCIVs can be taxed under the AMIT regime, each compartment of a CCIV is assimilated to a fictitious SICAV. The CCIV is the trustee of each sub-fund of the CCIV trust and the members of the sub-fund concerned are the beneficiaries.24

For tax purposes, each sub-fund trust is a separate entity from the CCIV. In addition, the CCIV as trustee for one sub-fund is a separate entity when acting as trustee for another sub-fund. This allows for cross-investment between sub-funds by the CCIV acting as trustee of one sub-fund and investing in another of its sub-funds.25

Given that the tax legislation treats the sub-funds as mutual funds, where a CCIV does not qualify as an AMIT for a year of income, the CCIV will be subject to the general principles of taxation of trusts.26

And after

The amending act creates a new corporate structure with the aim of attracting international investment into Australian funds. However, it should be noted that there is no mechanism for an existing fund to convert into a CCIV. This may inhibit the adoption of CCIVs in the short term in Australia.

Please contact us for any other request.

This article was written by Anthony Seyfort, Partner and Josh Hanegbi, Law Graduate.


1Companies Act 2001 (Cth)s1224.
2Ibid ss1222 and 1222E.
3Same as s1230Q.
4Ibid s1230.
5Same as s1244F.
6Same as s1224A.
7Same as s1223A.
8Same as Part 8B.2, Division 1, Subdivision D.
9Explanatory Memorandum, clause 2.48.
tenCompanies Act 2001 (Cth)s1222K.
11Ibid ss1225 and 1225F.
12Same as Part 8B.3, Division 5, Subdivision A.
13Ibid ss1223G and 1223H.
14Same as Part 8B.3, Division 4.
15Same as s1224P.
16Same as s1222N.
17Explanatory Memorandum, clause 1.58.
18Companies Act 2001 (Cth)s1228.
19Same as s1224G.
20Same as Part 8B.3, Division 2, Subdivision C.
21Clause 1.99 of the explanatory memorandum.
22Income Tax Assessment Act 1997 (Cth) (ITAA 97) s195-130; Explanatory clauses 13.62 to 13.
23ITAA 97 s195-135(2)(b).
24Ibid ss195-110 and 195-115.
25Same as s195-110.
26Clause 1.100 of the explanatory memorandum.