# Hedge fund industry in Australia and taxation



## satriani1 (8 May 2016)

I would like to ask how hedge fund industry works in Australia ?

I asked 2 diffrent tax advisor and they told me that in AU you need to pay:
30% tax as a company/trust
30-49% as a manager of fund
30-49% as a investor who have units

How is that possible that hedge funds in AU have more that 30 bln $, when Singapore has only 25 bln $ and in Singapore there is:
17% tax for company (first 3 years 50% less)
10% tax for fund manager (special incentive)
0% for investor (capital gain tax = 0% in SG)

So these 2 tax advisor are wrong and there is some other way to avoid tax in AU for hedge fund manager/company/investor, or people in Australia really like to pay high taxes. Which one is true ?


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## satriani1 (14 May 2016)

refresh


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## McLovin (14 May 2016)

satriani1 said:


> I would like to ask how hedge fund industry works in Australia ?
> 
> I asked 2 diffrent tax advisor and they told me that in AU you need to pay:
> 30% tax as a company/trust
> ...




The fund maybe managed in Australia but the assets might be held in a tax-free territory like the Caymans.


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## satriani1 (14 May 2016)

I heard that in AU is common law and ATO could figure out who have control over fund. If they prove that you have - then you need to pay tax in AU according to CFC law.

You could hide it in some way (nominated owner, directors) but in long perspective it is not a good idea..  If ATO in some point in your life proves that you had control - then you have BIG problem.


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## McLovin (14 May 2016)

satriani1 said:


> I heard that in AU is common law and ATO could figure out who have control over fund. If they prove that you have - then you need to pay tax in AU according to CFC law.
> 
> You could hide it in some way (nominated owner, directors) but in long perspective it is not a good idea..  If ATO in some point in your life proves that you had control - then you have BIG problem.




Yes. If you're an Australian tax resident and don't declare your income you have broken the law. That doesn't prevent the scenario I described in my post above about managing a fund from Australia but having the assets domiciled overseas. No law is being broken in doing that.


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## satriani1 (14 May 2016)

Ok but according to CFC you need to pay 30% anyway, after you declare your income overseas. So what is the point to do that ?

You could have asset to fund overseas and pay at the end, when you sell your units, but in this scenario you can't have control over the fund.


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## McLovin (14 May 2016)

satriani1 said:


> Ok but according to CFC you need to pay 30% anyway, after you declare your income overseas. So what is the point to do that ?
> 
> You could have asset to fund overseas and pay at the end, when you sell your units, but in this scenario you can't have control over the fund.






Your post is so confusing, I don't really know what you're asking/stating anymore. What's CFC? Controlled foreign corporation? The ATO would be pushing a boulder up a hill trying to argue that a hedge fund -- which isn't generally housed in a company structure -- in which a person invests meets the definition of a CFC.

The CFC rules are designed to stop people stashing cash in companies in zero tax jurisdictions. A hedge fund is a trust so, generally, can't have retained earnings.


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## satriani1 (14 May 2016)

I meant CFC (Controlled foreign corporation) law. One of my tax advisors said that this rules (not only CFC) are not only for companies but also for funds. He also said that they could ask authorities from other country who really control company/fund.

Anyway, refering to your post - If you need to withdraw earnings, then you need to pay every year up to 49% tax, so what is the point to open a hedge fund in Caymans?


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## McLovin (14 May 2016)

satriani1 said:


> I meant CFC (Controlled foreign corporation) law. One of my tax advisors said that this rules (not only CFC) are not only for companies but also for funds. He also said that they could ask authorities from other country who really control company/fund.




Your advisors don't know what they're talking about. 



> A CFC is a non-resident *company* that satisfies one of three control tests.




https://www.ato.gov.au/Forms/Foreign-income-return-form-guide-2013-14/?page=3

There is nothing particularly unusual about the CFC laws. They're upholding the principle that an Australian tax resident is taxed on their worldwide income. I'd guess you'd run into trouble in a foreign family trust if the ATO could prove that you controlled it through being a trustee. None of this applies to hedge funds though.




satriani1 said:


> Anyway, refering to your post - If you need to withdraw earnings, then you need to pay every year up to 49% tax, so what is the point to open a hedge fund in Caymans?




You don't need to withdraw the earnings, the earnings are "distributed" for tax only. The cash isn't physically distributed into an investors bank account. Presumably if you're investing in offshore hedge funds you'd be smart enough to not be paying a tax rate higher than 30%.

Hope that helps. It feels like we're going around in circles, and I'm getting off the merry-go-round.


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## satriani1 (14 May 2016)

You saying that you withdraw only earning, not initial capital, and you cash out not by sending a cash, but for example creating new units. Anyway, you need to declare this income and pay let's say 30% - it is still very high, comparing to HK or Singapore. Or maybe I don't understand something and you can do everything legally in AU and pay no tax.


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## Ald123 (18 June 2016)

Satriani

Investors in Australia are generally very obedient and not very smart. 

As I understand your question you are surprised that there is so much money's Australian hedge funds when the tax is so high. 


Look Australians don't think to deeply about anything if you told them that it is standard practise in other countries most like theirs, for home loans to be 3.5% or less over 30 years fixed with no fees or penalties for early repayments they would be surprised. They don't have their Goverment fighting for them against the banks. They don't understand that Australia is nothing but a debt colony for the British lords that own the major banks, insurers and mining companies. The Australian doesn't understand that their governments serve Britains interests and that legally Quuen Elizabeth owns basically the entire landmass of Australia and the Australians just buy perpetual lease of the land as opposed to a place like America where you actually own the land or China where you lease it for 100 years. They don't understand the implications of this. It's a nation of cultured consumers much like bacteria in a dish, placed here to enable the valuable resources to be used up by Britain for low price.  

Australians for instance only use real estate agents to buy and sell property at great cost to them just so that they don't have to deal with another person. In other western countries real estate agents hardly exist or are a minority with most people selling their property privately.


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