Taxation of Foreign Investment Funds (FIF)
Foreign Investment Fund (FIF) Rules
In the 2009 Federal Budget the Australian Government announced an intention to "repeal and replace the foreign investment fund (FIF) provisions with a specific
narrowly defined anti-avoidance rule" - see our page on the Australian 2009 Budget. On April 28, 2010 the Assistant Treasurer, "released for public consultation exposure draft legislation for an anti-roll-up fund rule that will apply to certain offshore investments." These are the rules that will replace the foreign investment fund (FIF) rules - we don't understand the impact at the moment of the suggested new rules, apart from the fact that they will now be called by a new acronym - "foreign accumulation funds" - FAF. Click here for a copy of the FAF exposure draft.
When things become clearer we will be publishing a summary of the new rules, and their impact.
The FIF rules have caused concern and some confusion for many expatriates returning to Australia for some time, having been introduced by the Government as a means of stopping individuals from deferring the payment of Australian tax on foreign investments.
The rules were stringent and potentially required you to bring to account the increase in the market value of foreign held assets from year to year. You were taxable on the increase in the value of these assets, meaning that you were potentially liable to pay Australian tax on unrealised foreign capital gains. Structures that could fall within the definition of FIF funds included personal pension funds (eg American IRA's, Canadian RRSP's and British ISA's) and "life insurance wrappers" which are often sold by overseas adviors.
A number of exceptions did apply for shares held in listed foreign companies. However, not every listed foreign company was eligible for exemption.
Please note that the FIF rules did not apply to foreign real estate investments or foreign bank accounts or foreign employer superannuation funds and we do not yet know the implications of the new proposed rules. Doubtless they will be complicated and there will be some confusion in the interim period; hence you are strongly recommended to seek professional advice regarding the application and interpretation of the current and proposed rules.
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