Private ruling: Investment Manager Regime
Date of advice: 11 August 2017
Published: November 2017
Ruling period: A number of income years

Ruling: Q1: Will the requirements of subsection 842-250(2) of the Income Tax Assessment Act 1997 (ITAA 1997) be met, such that no reduction in the IMR concession is required where Entity B’s connected entity-inclusive profit entitlement exceeds 20% of the unadjusted concessional amount (the 20% test) in the relevant income years? | A1: Yes, provided Entity B continues to actively market Fund A in order to reduce that profit entitlement to below 20% for the qualifying periods.

Relevant facts and circumstances: Fund A is an IMR entity pursuant to section 842-220 of ITAA 1997. Entity B is an independent Australian Fund Manager pursuant to section 842-245 of ITAA 1997. The indirect IMR concession applies to Fund A (subsection 842-215(5) of ITAA 1997). Entity B provided seed capital at the time Fund A was launched. An entity connected with Entity B (Entity C) provided additional funding to attract further external investment into Fund A during the start-up phase of the fund. Entity B has actively marketed Fund A to external investors since Fund A was launched and will continue to do so throughout the relevant income years.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 842-215 | Income Tax Assessment Act 1997 Section 842-250

Reasons for decision: Summary: The combined entitlement of Entity B and Entity C in respect of Fund A’s profit exceeds 20% for the income year in starting up the fund and thus the requirements of paragraph 842-250(1)(c) are met. Entity B has continued to actively market Fund A to external investors at all times since its launch, and will continue to do so in the relevant income years to address those circumstances with the intention of reducing Entity B and C’s combined entitlement to below 20% of the profits of Fund A. Therefore, based on the specific circumstances, the requirements of subsection 842-250(2) are met such that there is no reduction of the IMR concession for Fund A.