The federal government has released draft legislation for the proposed changes to the investment manager regime (IMR) and opened it for consultation.

The amendment of the rules aims to bring Australia's regime more closely in line with other financial services centres, including the United Kingdom, Hong Kong and Singapore.

"Australia's taxation of foreign managed funds is not consistent with other financial centres, including the US, the UK, Hong Kong and Singapore," Financial Services and Superannuation Minister Bill Shorten said yesterday.

"These new measures will help Australia retain $57 billion already invested here by foreign managed funds."

The amendments to income tax law will clarify how certain income of foreign funds, for the 2011 financial year and prior income years, is taxed.

It will also clarify the treatment of certain investments of foreign funds, where the returns or gains are treated as being attributable to a permanent establishment in Australia.

Financial Services Council chief executive John Brogden said the government's changes would provide tax certainty for foreign investors investing in Australian managed funds.

"We strongly support the government's intention to pass this legislation by the end of the year. It will remove uncertainty for Australian fund managers and encourage foreign investors to invest in Australian-based fund managers," Brogden said.

"The importance of this change cannot be underestimated - it removes a major barrier to Australian-based fund managers attracting foreign investment."

The IMR was a recommendation of the FSC to the Financial Centre Taskforce, also known as the Johnson review.

The consultation period on the draft legislation closes 30 August.