Taxation of Australian resident investors

Taxation
The tax information in this PDS is provided for general information only and is not intended to provide an exhaustive or definitive statement as to all the possible tax outcomes for investors.
Vanguard does not provide tax advice. As each investor’s circumstance is different, you should obtain professional tax advice concerning the particular tax implications of investing in the Funds for you. Discussion of tax in this PDS refers to the Income Tax Assessment Act 1936 (Cth), the Income Tax Assessment Act 1997 (Cth) as enacted, applicable case law and published Australian Taxation Office rulings, determinations and administrative practice at the date of this PDS. Any changes in the tax law or interpretation of the tax law subsequent to this date will not be reflected in the tax information provided in this PDS.
Taxation of Australian resident investors
The tax information provided in this PDS relates to Australian tax residents who hold their units on capital account for income tax purposes and who are not exempt from taxation, and does not consider any non-Australian tax consequences. Investors who fall outside these categories (for example, investors who are foreign residents, hold their units on revenue account or as trading stock, or who have made a fair value or financial reports election under the taxation of financial arrangement (“TOFA”) rules) should seek independent professional advice in relation to their specific circumstances.
Attribution Managed Investment Trusts (AMITs)
The Australian Government has enacted a new regime for the taxation of managed investment trusts (MITs), referred to as the Attribution Managed Investment Trust (AMIT) rules. Subject to eligibility, Vanguard may elect for a Fund to be classified as an AMIT and be subject to the AMIT rules.
Vanguard has assessed the eligibility of each of the Funds to elect into the AMIT regime and has disclosed on our website whether or not the AMIT regime will apply to each of the Funds.
For Funds that are subject to the new AMIT tax regime:
 The amount and components of the taxable income of the Fund which investors will be assessed on should be determined by reference to a statement provided by Vanguard to investors after the end of the year, known as the AMIT Member Annual Statement (“AMMA statement”). The AMMA statement will set out the amount and character of each component of the income of the relevant Fund which Vanguard attributes to the investor each year and which the investor should be assessed on.
 If the amount distributed to an investor exceeds the taxable income attributed to the investor, investors should be required to recognise a decrease in the tax cost base of their units in the Fund. If the taxable income attributed to an investor exceeds the amount distributed, then investors should be entitled to an increase in the tax cost base of their units. Vanguard’s estimate of these net cost base increase or decrease amounts will also be disclosed to investors through the AMMA statement.
 It is possible for the amount of taxable income that is attributed to an investor to differ from and exceed the amount distributed to an investor. This is likely to arise where Vanguard determines to accumulate taxable income in accordance with the Fund constitution. In this instance, the investor should be entitled to a net increase in the cost base of their units, as discussed above.
 The Constitution for the Fund sets out the basis upon which Vanguard will attribute the taxable income of the Funds to investors. This should be based on the components of income that are reflected in the distributions made to investors during the year and, in relation to income that is accumulated, a pro rata attribution of this income to investors at the time determined by Vanguard for this purpose.
 Although Vanguard expects that the Funds will be taxed under the AMIT tax regime, the Constitutions for the Funds will also provide for a situation where the Funds are non-AMIT. The taxation of a non-AMIT Fund is discussed below.
Non – Attribution Managed Investment Trusts (non-AMIT)
A Fund that does not qualify or elect to be an AMIT will be subject to the ordinary trust taxation provisions in the tax legislation. Broadly, investors in a fund that is a non-AMIT will be distributed and made “presently entitled” to all of the income of the Fund each year, and will be assessed on their proportionate share of the taxable income of the Fund each year.
Investors will be provided with tax statements after the end of each financial year detailing the components, for income tax purposes, of any net taxable income of the relevant Fund that they may be assessed on for the financial year as a result of their entitlements to the income of the relevant Fund. This information should assist investors in preparing their tax return for the year.
Categories of income from the Funds
Franking credits
For each of the Funds that invest in Australian equities, the tax components on which you are assessed as a result of your investment in a Fund may include franking credits attached to franked dividends derived by the Fund in respect of Australian equities. Subject to the relevant qualification requirements (including 45 day holding period and related payments rule) these franking credits do not form part of your cash receipts but will need to be included in your taxable income and, depending on your particular circumstances, may be available to offset your tax liability. Certain investors may also be entitled to a refund if the franking credits exceed your total income tax liability.
Foreign income
Income received by a Fund from sources outside Australia may be subject to tax in the country of source. Australian tax resident investors may be entitled to claim a foreign income tax offset against their Australian tax liability in respect of their share of the foreign tax paid.
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Capital gains
Where you become assessed on a net capital gain from a Fund, to the extent the net capital gain includes a discounted gain, you may be required to gross up the net capital gain by doubling the discounted gain component. You may then apply any of your current or prior year capital losses to reduce the grossed up capital gain.
Depending on your circumstances, you may be able to apply the capital gains tax (CGT) discount (50 percent for individuals and certain trusts and 33.33 percent for complying superannuation funds) to arrive at your net capital gain. This amount should be included in the calculation of your taxable income.
As the Funds are trusts and are eligible for the discount capital gains concession, they may distribute (where a Fund is not an AMIT) or attribute (where a Fund is an AMIT) amounts that are referable to the discount capital gains concession. Depending on your circumstances, the receipt or attribution of those amounts may not be assessable and may not result in a reduction in the cost base of your units in the Funds.
CGT tax election
There are tax rules that allow an eligible “managed investment trust” to make an irrevocable election to apply the CGT rules as the primary code for the taxation of gains and losses on disposal of certain assets by a Fund. Vanguard has made this election for the Funds that are eligible.
Non-assessable distributions
A Fund may make distributions of amounts which are non-assessable to the investor, such as amounts that are referable to the discount capital gains concession. Receipt of certain non-assessable amounts may have CGT consequences, including the potential for cost base adjustments for investors, depending on their circumstances, and subject to the discussion above regarding capital gains concession amounts. The way in which these cost base adjustments operate can differ depending on whether a Fund is an AMIT or non-AMIT.
Other gains
Gains and losses in relation to investments of certain Funds, including foreign currency gains arising from the investment of the Funds, may be assessed as income under provisions other than the capital gains tax provisions of the Income Tax Assessment Act 1997 (Cth). The net taxable income of a Fund on which you are assessed may include a component of assessable income which is referable to those gains.
Disposal of units
Investors may be liable for tax on gains realised on the disposal of units in the Funds. Disposal of units may be in the form of a withdrawal, a switch between Funds or a transfer of units.
Under the CGT provisions, any taxable capital gain arising on disposal of your units may form part of your assessable income. Some investors may be eligible for the CGT discount upon disposal of their units if the units are held for at least 12 months or more before the disposal, and certain other requirements are satisfied. You should obtain professional tax advice about the availability of the CGT discount.
Any capital loss arising on a disposal of units may be able to be offset against capital gains arising in that year or subsequent years.
Taxation of non-resident investors
If you are not a resident of Australia for tax purposes, Vanguard may be required to withhold Australian tax on certain distributions made to you.
If the Fund is an AMIT and you are attributed with certain components of the taxable income of the Fund without having been distributed those amounts, Vanguard is required under the AMIT regime to pay tax on that income on your behalf and is entitled to be indemnified by you in respect of the relevant amount. Under the Constitution for the Funds, Vanguard may satisfy this indemnity by deducting the relevant amount from any payments made to you or through a compulsory redemption of units.
Generally, a non-resident investor should not be liable for Australian CGT in respect of the disposal of their units in the Funds, if the Funds and the non-resident investor satisfy certain requirements at the time of disposal. It is very important that non-resident investors seek independent tax advice before investing in the Funds which takes into account their particular circumstances and the provisions of any relevant double tax agreement between Australia and their country of residence. It is particularly important that Australian tax advice is obtained if the non-resident investor is assessed on the disposal of their units in the Funds otherwise than under the CGT provisions.
Quoting your Tax File Number (TFN) or TFN exemption or Australian Business Number (ABN)
Collection of your TFN is authorised and its use and disclosure are strictly regulated by the tax laws and the Privacy Act 1988. You may quote a TFN or claim a TFN exemption in relation to your investment in a Fund when completing your Application Form. If you choose not to quote a TFN or TFN exemption, Vanguard will be required to deduct tax at the prescribed rate (at the date of this PDS this was the highest marginal tax rate plus any applicable levies).
You may quote your ABN instead of a TFN if you are making this investment in the course of an enterprise carried on by you.
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Social security
Investing in the Funds may affect your social security entitlements because your investment may be included in the income and assets tests of Centrelink and the Department of Veterans’ Affairs. You should obtain professional advice concerning your particular social security implications.
Goods and Services Tax (GST)
The issue and withdrawal of units in the Funds should not be subject to GST, irrespective of whether or not the investor is registered for GST. In the instance the investor is registered for GST, the acquisition, disposal and/or redemption of units in the Funds will generally constitute input taxed financial supplies. The receipt of distributions should not give rise to any GST consequences for investors, as such amounts are generally considered to be outside the scope of the GST regime.
Fees and expenses incurred by the Funds, such as management costs, will generally attract GST at the rate of 10 percent. Given the nature of the Funds’ activities, the Funds will generally not be entitled to claim input tax credits for the full amount of the GST incurred. However, a Reduced Input Tax Credit (RITC) should be available to the GST paid on the expenses incurred by a Fund.
The GST and expected RITC relating to fees and expenses is incorporated in the management cost for each Fund. Individual investors should seek specific professional advice with respect to the GST consequences of their investments.
Other information
Funds
Proxy voting and engagement
Vanguard votes proxies in companies/funds where its Funds have a significant economic interest and it is reasonably practicable to do so. Details of Vanguard’s proxy voting policy can be found on our website.
Custody of assets
The Funds hold units in other Vanguard funds (Underlying Funds) and are not expected to hold other securities in their own right. As such, the Funds operate without a separate custodian. The assets of the Funds are held by Vanguard as the responsible entity on trust for investors. Vanguard has appointed JP Morgan Chase Bank, N.A. (Sydney branch) (ABN 43 074 112 011) (JP Morgan) as custodian of the Underlying Funds.
In their capacity as custodian, JP Morgan provides custodial services to Vanguard (as responsible entity) and is responsible for the safekeeping of the assets of the Underlying Funds. The role of the custodian is generally limited to holding the assets of the Underlying Funds and acting on behalf of the responsible entity in accordance with proper instructions (except in limited circumstances where the custodian has a discretion to act without instructions).
The custodian has no supervisory obligation to ensure that Vanguard complies with its obligations as responsible entity of the Funds and generally does not make investment decisions in respect of the assets held or manage those assets. Vanguard will be liable to unit holders for acts and omissions of the appointed custodian.
The custodian may change from time to time but must satisfy any relevant regulatory requirements.
Termination
Vanguard may wind up the Funds or a Fund at any time on giving notice to unitholders. Following winding up, the net proceeds will be distributed to unitholders.
Vanguard
Vanguard as responsible entity and the investment manager
Vanguard, as the responsible entity, is solely responsible for the management and administration of the Funds and the Underlying Funds in which the Funds invest where applicable. Vanguard is also the investment manager for the Funds and Underlying Funds. Vanguard holds an Australian Financial Services Licence (AFSL 227263), which authorises it to act as the responsible entity of the Funds and Underlying Funds. The powers and duties of Vanguard are set out in each fund’s constitution, the Corporations Act and general trust law. Vanguard has the power to appoint an agent, or otherwise engage a person (including any related entities or associates), to do anything that it is authorised to do in connection with the Funds and Underlying Funds. Vanguard has appointed other entities within the Vanguard group of companies to provide investment management related services to the Underlying Funds.
Retirement of Vanguard
Vanguard may retire as responsible entity of a Fund by calling a meeting of investors to enable investors to vote on a resolution to choose a company to be the new responsible entity. Vanguard may be removed from office by an extraordinary resolution (i.e. 50% of all units in the Fund entitled to vote, including members who are not present in person or by proxy) passed at a meeting of investors, in accordance with the Corporations Act.
Indemnities and limitation of liability of Vanguard
In general, Vanguard may act on the opinion of, advice of and information obtained from advisers and experts. In those cases, Vanguard is not liable for anything done in good faith in reliance on that opinion, advice or information.
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Vanguard is indemnified out of each Fund against any expenses, loss, costs, damages and liabilities that may be incurred in properly performing any of its duties or prosecuting or defending any action or suit in connection with each of the Funds (other than if it arises out of Vanguard’s fraud, negligence or breach of trust).
Vanguard is not liable personally to unitholders or other persons for failing to act except in the case of fraud, negligence or breach of trust.
Constitutions
Each Fund is a managed investment scheme governed by a constitution. Under the constitution, Vanguard has all the powers of a natural person in respect of the Funds. The constitution for each Fund sets out the rights and obligations of unitholders and the rights and obligations of Vanguard as responsible entity of the Funds. This PDS outlines some of the more important provisions of the constitutions.
The terms and conditions of the Fund’s constitutions are binding on each investor in the relevant Fund and all persons claiming through them respectively, as if the investor or person were a party to the constitutions.
A copy of any of the Fund constitutions may be inspected by unitholders at Vanguard’s office during business hours. Vanguard will provide investors with a copy of the required constitution upon request.
Amendments to the constitutions
Vanguard may amend the constitution of each Fund from time to time, subject to the provisions of the constitution and the Corporations Act. Generally, Vanguard can only amend a constitution where Vanguard reasonably believes that the change will not adversely affect your rights as an investor. Otherwise, a constitution can only be amended if approved at a meeting of investors.
Reimbursement of expenses
In addition to any other right of indemnity, which Vanguard may have under the Fund’s constitutions or at law, Vanguard is indemnified and entitled to be reimbursed out of, or paid from, the assets of each of the Funds for all liabilities, losses, damages, expenses or costs incurred in the course of its office or in the administration or management of a particular Fund (other than if it is incurred by Vanguard’s fraud, negligence or breach of trust). Without limitation, this includes amounts payable in properly performing any of its duties or exercising any of its powers.
Related party arrangements
The Responsible Entity is a wholly owned subsidiary of The Vanguard Group Inc. and part of the Vanguard Group. For these purposes, a related party includes certain entities and individuals that have a close relationship with the Responsible Entity, including, but not limited to The Vanguard Group Inc. itself, other subsidiaries of The Vanguard Group Inc. and other funds operated or managed by members of the Vanguard Group.
The Responsible Entity may from time to time use the services of related parties (including, but not limited to, investment management and administration) and pay commercial rates for these services. The Responsible Entity may also enter into financial or other transactions with related parties in relation to the assets of the Fund and such arrangements will be based on arm’s length commercial terms or as otherwise permissible under the law.
In the course of managing the Fund the Responsible Entity may come across conflicts in relation to its duties to a Fund, related funds and its own interests. The Responsible Entity has internal policies and procedures in place to manage all conflict of interest appropriately. These policies and procedures will be reviewed on a regular basis and may change from time to time. In addition to complying with these policies and procedures, all conflicts will be resolved in a fair and reasonable manner, in accordance with the relevant law and ASIC requirements.
Compliance
The compliance plan
Vanguard has prepared and lodged compliance plans for each Fund with ASIC. The compliance plans set out the key criteria that Vanguard will follow to ensure that it is complying with the Corporations Act and each Fund’s constitutions. Each year each compliance plan is independently audited, as required by the Corporations Act, and the auditor’s report is lodged with ASIC.
The compliance committee
Vanguard is required to, and has, established a compliance committee with a majority of members that are external to Vanguard.
The compliance committee’s functions include:
 monitoring Vanguard’s compliance with the compliance plans and reporting its findings to Vanguard
 reporting breaches of the Corporations Act or the constitutions to Vanguard
 reporting to ASIC if the committee believes that Vanguard has not taken or does not propose to take appropriate actions to deal with breaches reported to it by the committee
 assessing the adequacy of the compliance plans, recommending any changes and reporting these to Vanguard.
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Investors
Indirect investors
You may invest in the Funds offered in this PDS indirectly (for example, through a master trust or a nominee or a custody service). If you invest in this manner certain information in this PDS may not be relevant to you such as: applications and withdrawals, income distributions, investor communication, fees and costs, how to open an account, cooling off rights and complaints (subject to the below). You should consult the relevant offer document or client agreement through which you have invested.
Vanguard’s complaint and dispute resolution process as set out in this PDS will apply to both direct and indirect investors.
Cooling off
Retail investors, as defined in the Corporations Act, have the right to a 14 day cooling off period during which time you may request in writing that Vanguard repay your investment. The 14 day period commences either from the time the investment is confirmed by Vanguard or 5 business days after the units are issued, whichever is the earlier. The amount repaid to you under the cooling off provisions may be less than the amount you invested. The amount repaid will be based on the sell price applicable for the day the request is received, and may be reduced by tax or duty paid or payable by you in relation to the acquisition and termination of the investment.
The right to cool off may not apply if you invest indirectly (for example, through a master trust, wrap platform or a nominee or a custody service), even if you are a Retail investor. Indirect investors should seek advice from their platform operator or consult the relevant platform guide or similar type document as to whether cooling off rights apply.
Meeting of investors
Vanguard may convene a meeting of investors of a Fund at any time. Examples of circumstances where meetings may be called include to approve certain amendments to a Fund’s constitution or to wind up a Fund. Unitholders also have limited rights to call meetings and have the right to vote at any unitholder meetings.
Except where a particular Fund constitution provides otherwise, or the Corporations Act requires otherwise, a resolution of unitholders must be passed by investors who hold units in the Fund exceeding 50% in value of the total value of all units held by unitholders who vote on the resolution.
A resolution passed at a meeting of investors held in accordance with a Fund’s constitution binds all unitholders of that Fund.
Limitation of liability of investors
The Fund’s constitutions provide that the liability of each investor is limited to their investment in a Fund and that an investor is not required to indemnify Vanguard or a creditor of Vanguard against any liability of Vanguard in respect of a Fund. However, no complete assurance can be given in this regard, as the ultimate liability of an investor has not been finally determined by the courts.
Complaints
If you have a complaint about a Fund or the services provided to you by Vanguard, please contact Client Services on 1300 655 101 from 8:00am to 6:00pm Melbourne time, Monday to Friday.
If your complaint is not resolved to your satisfaction, you can refer the matter in writing to:
Client Services Manager, Vanguard Investments Australia Ltd, GPO Box 3006, Melbourne, Vic, 3001.
Vanguard will try to resolve your complaint and get back to you as soon as possible, but in any event we will provide a final response within 45 days of receipt.
If an issue has not been resolved to your satisfaction, you can lodge a complaint with the Australian Financial Complaints Authority (AFCA). AFCA provides a fair and independent financial services complaint resolution service that is free to consumers. You can contact AFCA on 1800 931 678 (free call) or email on info@afca.org.au.
Privacy
Vanguard is committed to respecting the privacy of your personal information.
Privacy laws regulate, among other matters, the way organisations collect, use, disclose, keep secure and give people access to their personal information. Vanguard’s privacy policy states how Vanguard manages personal information. Vanguard collects personal information in the Application Form, and may collect additional personal information in the course of managing your investment in order to provide this product to you and to establish and manage your investment in a Fund. Vanguard may obtain information about the investor or any beneficial owners from third parties if it is believed this is necessary to comply with relevant laws. Vanguard may be required by law to disclose personal information to relevant regulators (whether in or outside of Australia).
If you do not provide the information requested in the Application Form, Vanguard may not be able to process or accept your application.
To obtain a copy of our privacy policy or to access or update your personal information, visit www.vanguard.com.au or contact Client Services on 1300 655 101 or write to GPO Box 3006, Melbourne, Vic, 3001.
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US Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standard (CRS)
FATCA is a US law which impacts investors worldwide. FATCA attempts to minimise US income tax avoidance by US persons investing in foreign assets, including through their investments in foreign financial institutions. FATCA requires reporting of US persons’ direct and indirect ownership of non-US accounts and non-US entities to the US Internal Revenue Service (IRS).
Similarly, the Organisation for Economic Cooperation and Development (OECD) has established a reporting regime (CRS), which requires participating jurisdictions to obtain information from their financial institutions and exchange it with other participating jurisdictions as of 1 July 2017. Under FATCA, the Australian Government has entered into an Inter-Governmental Agreement (IGA) with the Government of the United States of America for reciprocal exchange of taxpayer information. Under the IGA, financial institutions operating in Australia report information to the Australian Taxation Office (ATO) rather than the IRS. The ATO may then pass the information on to the IRS.
The Fund may request such information or documents from you as is necessary to verify your identity and FATCA and CRS status, including self-certification forms. The Fund may disclose this information to the IRS or ATO (who may share this information with other tax authorities) as necessary to comply with FATCA, the IGA, CRS or applicable implementing law or regulation, which may include information about:
 Investors identified as US citizens or tax residents (information about corporations and trusts with US substantial owners or controlling persons will also be reported)
 All other investors identified as non-residents for CRS purposes (including non-resident controlling persons of certain entities)
 Investors who do not confirm their FATCA or CRS status
 Certain financial institutions that do not meet their FATCA obligations (non-participating foreign financial institutions)
Vanguard is not able to provide tax advice and strongly encourages investors to seek the advice of an experienced tax adviser to determine what actions investors may need to take in order to comply with FATCA and CRS.
Consents
FTSE, Bloomberg and MSCI have each given written consent to the statements made about them in this PDS as well as the disclaimers in the form and context in which they are included below, and have not withdrawn each of their consent as at the date of this PDS