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FIIG calls for taxation, regulatory overhaul

FIIG Securities has called on the government to impose structural changes to the Australian taxation system to see fixed income fairly promoted across all investor groups.

In its submission to the Standing Committee on Tax and Revenue, FIIG said there are a number of changes that would put fixed income on a level playing field to other asset classes.

In its submission FIIG highlighted the "fundamental need" for structural changes in the Australian taxation system that will serve the purpose for a greater balance in investor allocation.

It highlighted the current imbalance in the tax treatment of the various asset classes that distorts asset allocation practises in Australia.

FIIG said as a result they are extremely different to other OECD countries and materially divergent from what is considered to be well documented best practice.

Jim Stening, chief executive of FIIG, said: "The topic from the Standing Committee is one that surfaces every now and then and when it does, everyone agrees that Australia would be far better off with a properly functioning corporate bond market, however the only change to date has been immaterial and a tinkering at the edges with no progress made."

FIIG said it regularly receives feedback from the Australian investing public who feel they are unfairly penalised for investing in the corporate bond market in Australia due to the absence of concessional treatment available with other asset classes.

Its submission called for taxation to consider Australia's aging population which will likely see migration away from high risk assets, such as equities, to fixed income.

"The current global events help to demonstrate the lack of access and investment into protective assets such as government bonds and corporate bonds with very few investors owning any bonds let alone those defined as retail," Stening said.

FIIG's submission proposed a range of measures to address the imbalance in treatment of different asset classes.

It calls for tax exemptions on bonds in a self-managed superannuation portfolio up to an allocation of 40% of the portfolio.

It said this will have a little impact on forward estimates of the commonwealth, particularly if it were to apply solely to SMSF portfolios, where asset allocation is most relevant and should reflect best practise.

However, it will reduce the burden on the commonwealth as the baby boomer generation enters the retirement and drawdown phase of their superannuation portfolios.

The submission pointed to the Corporations Act which requires advisers act in the 'best interests of the client' which by extension, it said, should include a prudent approach to asset allocation to cover each of the core asset classes.

FIIG suggested best practice asset allocation should be part of the ethical standards set out by FASEA.

It argued that if an adviser is providing prudent advice they should be compelled to consider best practice asset allocation as a minimum standard in advising clients.

Stening said in an ideal scenario, the Australian taxation system would promote each of the asset classes in an equitable manner, which is consistent with balanced portfolio best practice, to remove any distortion which has longer term structural and cultural detrimental effects.

"Without the ability to autonomously provide various and flexible debt-funding to Australian companies, we cannot credibly lay claim to best-practice in our capital markets, let alone be described as a centre of financial excellence in the Asia Pacific region," Stening said.

"We consider this to be a critical development in Australia of the capital markets and also within the fixed income market equally domestically and offshore, as it relates to both individual and corporate investment."

Read more: TaxationFixed incomeFIIG SecuritiesJim Stening
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