US mutual funds hit a snag
US mutual funds still have their work cut out for them before they roll out their fund offering into the Australian market.
Complications have arisen due to the capital gains tax (CGT) provisions in the Ralph Review. US funds only return dividends while Australian funds provide returns to investors as distributions.
Under changes proposed in the Ralph Review, the US returns will still feel the full weight of CGT, while local funds while only bear half that rate.
Merrill Lynch Asset Management has already launched a suite of US mutual funds while Alliance Capital is applying the finishing touches to its offering.
Merrill Lynch Mercury Asset Management retail business manager David Skelton says the relaxation of the Foreign Investment Fund (FIF) laws provide a positive environment for mutual funds. However, changes to CGT were not mentioned when the FIF laws were relaxed.
"We started our research some time ago, in April of this year while these proposals are only new with the Ralph Review," Skelton says.
"Obviously if we had known this would occur and been told of the effect we would have taken a different approach back then."
Skelton says the Ralph Review is still in proposal form and lobbying is in place to show the government the consequences of the proposals.
"I think we will receive a warm response because it defeats the whole purpose of the FIF laws."
The FIF legislation was passed in June this year to allow tax US domiciled funds to enter Australia and compete on an equal footing with local funds.
AUTHOR
Jason Spits
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