The proposed foreign accumulation fund (FAF) rules will not apply to the current financial year, Assistant Treasurer Bill Shorten said yesterday.

"The FAF rule is still under development and 30 June is fast approaching," Shorten said.

"The government has received no evidence that deferral activity has emerged following the repeal of the FIF (foreign investment fund) regime.

"We are therefore happy to provide certainty for industry and investors by confirming the FAF rule will not apply for the 2010/11 income year."

The FAF rule would apply for income years starting on or after the date it received royal assent, he said.

The rule is part of a wider package of reforms to the foreign source income attribution rules and is designed to make it more appealing for foreign asset managers to offer products in the Australian market.

The government is still in the process of developing the FAF rule and is engaged in ongoing public consultation.

Many foreign asset managers hope FAF will enable them to establish feeder funds in Australia that will see money flow into foreign-based master funds, rather than having to go through the expensive process of setting up an Australian unit trust.

It is also likely to end the cumbersome practice of bed-and-breakfasting, in which fund managers buy and sell their holdings overnight, because unrealised gains will no longer be fully taxed.

However, there are some concerns over how the new rules will affect fixed income funds, and many fund managers will not establish new products until all the details of the legislation are clear.