Treasury has released draft legislation that will implement the third and final element of the Investment Manager Regime (IMR) reforms.
The proposed changes will extend concessional income tax treatment to foreign investors in Australian assets that are of a portfolio nature.
"The amendments also make significant changes to the criteria that determine when a foreign fund is widely held and simplify the legislative mechanism for providing the IMR concession," said Treasury's explanatory memorandum.
The IMR is designed to place foreign investors who invest into Australia through a foreign fund in the same tax position they would have been in had they invested directly.
Financial Services Council chief executive Sally Loane welcomed the draft legislation.
"The revised IMR legislation will provide foreign investors with clarity and certainty on the tax treatment of their investments," Ms Loane said.
"It removes the tax impediments which have deterred foreign entities from using Australian fund managers and paves the way for Australia to capitalise on its comparative advantage in funds management.
"Less than five per cent of Australia’s $2.4 trillion in funds under management are currently sourced from overseas," Ms Loane said.
The Alternative Investment Management Association (AIMA) also welcomed the proposed changes.
AIMA Australia chair Paul Chadwick said the changes could make Australia a "more dynamic and vibrant hedge fund centre in the Asia Pacific".
"We commend Treasury for its thorough and considered approach to formulating an IMR that addresses many impediments that have deterred investment into Australian based hedge funds," Mr Chadwick said.
Treasury has incorporated many of the changes recommended by the AIMA throughout the consultation process over the past four years, he added.
"We believe the IMR in its amended form will bring clarity to the taxation treatment of foreign capital invested in Australia, and so will benefit the Australian hedge fund management industry," Mr Chadwick said.
"It will bolster local fund inflows and appeal to international funds considering expanding operations to Australia."
Submissions to Treasury on the IMR Element Three implementation are due by Thursday 9 April 2015.
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