The Corporations Act 2001 (Cth) (Act) has been amended to introduce a new type of company by the Corporate Collective Investment Vehicle Framework and Other Measures Act 2022 (Amending Act). These amendments, which will be effective from 1 July 2022, introduce the Corporate Collective Investment Vehicle (CCIV), an entity specifically designed for funds management.
CCIVs aim to be legal structures that are more recognisable to foreign investors than the typical trust-based managed investment scheme that operates in Australia. It is the hope of the Federal Government that CCIVs will increase foreign investment into Australian funds.
An overview of CCIVs
CCIVs are a new type of company that are limited by shares and have a single corporate director.1 The director must be a public company with an Australian Financial Services Licence. Additionally, a CCIV must have a constitution, at least one sub-fund and must state that it is a CCIV in its name.2
CCIVs have at least one sub-fund, which may each offer different investment strategies. Importantly, the assets and liabilities of each sub-fund are separated from each other, although they are not separate legal entities. However, sub-funds are permitted to invest in each other.3 Each sub-fund must be registered with ASIC, either at the time when the CCIV is registered or, if sub-funds are added at a later date, when those sub-funds are established. A CCIV can issues shares if the rights attaching to the shares are in respect of the assets of only one sub-fund of the CCIV.4
CCIVs have some key differences to managed investment schemes and other companies:
- CCIVs do not involve the use of trusts;5
- CCIVs have no officers or employees apart from their corporate director;6 and
- the Replaceable Rules of the Act do not apply.7
Wholesale or retail CCIVs
In a similar way to the classification of managed investment schemes, CCIVs may be classified as either retail or wholesale.8 However, unlike schemes, all CCIVs must be registered irrespective of whether they are retail or wholesale.9
Recall that wholesale managed investment schemes are not required to be registered, potentially making them more appealing from a regulatory compliance perspective than CCIVs in certain circumstances.
The test for whether a CCIV is a retail CCIV is whether at least one member of the CCIV is:
- a protected retail client;
- a protected client under custodial arrangements; or
- a protected member of a passport fund.10
These classes of people are defined in s1222K of the Act.
The distinction is important as retail CCIVs are subject to greater regulatory control. For example:
- the corporate director’s officers and employees have extra duties;11
- requirements for member approval for related party transactions;12
- content requirements for the constitution;13
- requirement to have a compliance plan, similar to that of a managed investment scheme;14 and
- limitations on the right of the corporate director to acquire shares in the CCIV.15
Only retail CCIVs with a single sub-fund can be publicly listed. Wholesale CCIVs or retail CCIVs with multiple sub-funds may not list.16
CCIV member meetings are regulated in similar ways to those of a registered scheme.17 However, CCIVs have unique rules for director meeting, as they only have a single corporate director. Generally, Part 2G.1 of the Act, which regulates directors’ meetings, do not apply to a CCIV.18
At least half the directors of the corporate director of a retail CCIV must be external directors. External directors are directors that have not, in the last two years, been an employee or manager of, or dealt in a substantial way with, the corporate director, and also have no material interest in the corporate director.19
Corporate directors are replaced in a similar way to the responsible entity of a registered scheme. The director may retire, in which case a members’ meeting must be called for the selection of a new director, or be replaced by its members via special resolution at a members’ meeting.20
Taxation of CCIVs
Similarity to Attribution Managed Investment Trusts
The Amending Act also amends the Income Tax Assessment Act 1997 (Cth) to create the regime for taxing CCIVs. In a similar way to the taxation of Attribution Managed Investment Trusts (AMIT), CCIVs are taxed on a flow-through basis. The CCIV can attribute amounts of assessable income, exempt income, non-assessable non-exempt income and offsets to its members, while retaining the character of those amounts.21 As a result, income is taxed only at the members’ individual tax rate and the CCIV generally pays no corporate tax.
In order to qualify for this flow-through treatment, the relevant sub-fund must meet a modified form of the AMIT eligibility criteria. At a high level, the modified criteria are as follows:
- the CCIV is an Australian resident;
- the sub-fund is used for collective investment by pooling the contributions of its members as consideration for the right to the benefits produced from those contributions;
- the CCIV meets the ‘widely-held’ requirement, which relates to the number and type of its members;
- the CCIV meets the ‘closely-held’ requirement, which relates to the relative interests in the CCIV of its members; and
- the CCIV does not carry on or control a share / unit trading business.22
As a CCIV is not a trust, the usual requirement for an AMIT to be a managed investment scheme does not apply. Additionally, unlike managed investment trusts, no election must be made in order for a sub-fund to be an AMIT.23
CCIVs are a new type of company limited by shares, however, so that CCIV members can be taxed under the AMIT regime, each sub-fund of a CCIV is taken to be a fictional unit trust. The CCIV is the trustee of each CCIV sub-fund trust and the members of the relevant sub-fund are the beneficiaries.24
For the purposes of the tax law, each sub-fund trust is a separate entity to the CCIV. Additionally, 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
As the tax law treats sub-funds as unit trusts, where a CCIV does not qualify as an AMIT for an income year, the CCIV will be subject to general trust taxation principles.26
The Amending Act creates a new company structure for the purpose of attracting international investment in Australian funds. However, it is worth noting that there are no mechanisms to allow an existing fund to roll over into a CCIV. This may inhibit the uptake of CCIVs in the short term in Australia.
Please contact us for any further enquiries.
This article was written by Anthony Seyfort, Partner and Josh Hanegbi, Law Graduate.
1Corporations Act 2001 (Cth) s1224.
2Ibid ss1222 and 1222E.
8Ibid Part 8B.2, Division 1, Subdivision D.
9Explanatory Memorandum, clause 2.48.
10Corporations Act 2001 (Cth) s1222K.
11Ibid ss1225 and 1225F.
12Ibid Part 8B.3, Division 5, Subdivision A.
13Ibid ss1223G and 1223H.
14Ibid Part 8B.3, Division 4.
17Explanatory Memorandum, clause 1.58.
18Corporations Act 2001 (Cth) s1228.
20Ibid Part 8B.3, Division 2, Subdivision C.
21Explanatory Memorandum clause 1.99.
22Income Tax Assessment Act 1997 (Cth) (ITAA 97) s195-130; Explanatory Memorandum clauses 13.62 – 13.
23ITAA 97 s195-135(2)(b).
24Ibid ss195-110 and 195-115.
26Explanatory Memorandum clause 1.100.