Bill Introduced to Revise Australia's Tax Rules for Investments in U.S. Funds

Washington, DC, July 15, 1998 - Australia has special tax rules that apply to investments in foreign investment funds ("FIFs") which discourage Australian residents from purchasing shares in offshore mutual funds (the FIF rules accelerate the recognition of income to a shareholder by taxing certain unrealized gains in the fund's portfolio).

In January of this year, the Australian government proposed an amendment to the FIF rules to exempt investments in U.S. funds that qualify as regulated investment companies ("RICs") for U.S. federal income tax purposes. In early July, Taxation Laws Amendment Bill No. 5 was introduced to amend the FIF rules to exempt interests in RICs, as well as interests in other types of U.S. entities, including corporations, real estate investment trusts, and in some cases, common trust funds and entities taxed as partnerships. The exemptions are proposed to be effective for notional accounting periods of Australian investors ending after July 1, 1998.

The time frame in which this proposal will be considered is not clear due to the possibility of a national election this fall or winter. If an election is scheduled, it is likely that the bill will not be enacted until early next year (assuming the bill is reintroduced after the election).