Proposal to Amend Australia's Tax Rules for Investments in U.S. Funds

Washington, DC, January 15, 1998 - Australia's tax rules governing investments in foreign investment funds ("FIFs") create a significant disincentive for most Australian residents to purchase shares in offshore mutual funds (the FIF rules accelerate the recognition of income to the shareholder by taxing certain unrealized gains in the fund's portfolio). In November 1996, the Institute urged a government-sponsored panel that was reviewing Australia's financial system to consider providing an exemption from the FIF rules for investments in U.S. funds that qualify as regulated investment companies for U.S. federal tax purposes. The Institute pointed out that, as a matter of tax policy, an exemption should be provided because, while the FIF rules were designed to restrict tax deferral opportunities, investments in regulated investment companies do not offer investors tax deferral opportunities.

The Australian Government has proposed an amendment to the FIF rules that would exempt investments in U.S. funds from the FIF rules. The description of the proposal states that "The exemption will encourage Australian fund managers to make their operations internationally competitive, by exposing them to competition from U.S. funds and facilitating portfolio allocation to such funds." The change would be effective for accounting periods of Australian investors ending on or after the date the proposed legislation is introduced.