Proposed FAF rules will not apply for the 2010-11 income year

In one of his final announcements before the end of the 2011 financial year, the Assistant Treasurer, the Hon Bill Shorten MP, announced that the proposed Foreign Accumulation Fund (FAF) rules will not apply for the 2010-11 income year.

Moore Stephens welcomes this timely announcement as it provides certainty for the funds management industry and its investors at the commencement of the reporting season for the 2010-11 year.

The FAF rules are intended to replace the Foreign Investment Fund (FIF) regime that was repealed from 30 June 2010.  According to the Exposure Draft Legislation released in February this year, the FAF rule is a targeted integrity measure aimed, according to Treasury, at the most abusive cases of deferral in the non-control environment.  Broadly, a 'foreign accumulation fund' is a fund:

1. With direct holdings of debt interests (i.e. interest bearing investments) comprising at least 80% of the market value of the fund's gross assets
2. That distributes less than 80% of the realised gains and profits derived during a financial year.

Mr Shorten made this announcement as the Government has not received any evidence of emerging deferral activity following the repeal of the FIF regime.  The FAF rules will have application for income years starting on or after the date of Royal Assent, given that the Government is still developing the FAF rules and in the midst of public consultation.

It will be important for those potentially affected by the proposed FAF rules, such as domestic fund managers investing in foreign funds and foreign fund managers hoping to establish Australian feeder funds into foreign-based master funds, to be aware of any future developments to determine the impact on their business operations and strategy.

For further information, please contact the author or your Moore Stephens relationship partner.

In one of his final announcements before the end of the 2011 financial year, the Assistant Treasurer, the Hon Bill Shorten MP, announced that the proposed Foreign Accumulation Fund (FAF) rules will not apply for the 2010-11 income year.

Moore Stephens welcomes this timely announcement as it provides certainty for the funds management industry and its investors at the commencement of the reporting season for the 2010-11 year.

The FAF rules are intended to replace the Foreign Investment Fund (FIF) regime that was repealed from 30 June 2010.  According to the Exposure Draft Legislation released in February this year, the FAF rule is a targeted integrity measure aimed, according to Treasury, at the most abusive cases of deferral in the non-control environment.  Broadly, a 'foreign accumulation fund' is a fund:

1. With direct holdings of debt interests (i.e. interest bearing investments) comprising at least 80% of the market value of the fund's gross assets
2. That distributes less than 80% of the realised gains and profits derived during a financial year.

Mr Shorten made this announcement as the Government has not received any evidence of emerging deferral activity following the repeal of the FIF regime.  The FAF rules will have application for income years starting on or after the date of Royal Assent, given that the Government is still developing the FAF rules and in the midst of public consultation.

It will be important for those potentially affected by the proposed FAF rules, such as domestic fund managers investing in foreign funds and foreign fund managers hoping to establish Australian feeder funds into foreign-based master funds, to be aware of any future developments to determine the impact on their business operations and strategy.

For further information, please contact the author or your Moore Stephens relationship partner.

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