Treasury has announced a tax exemption that will exclude income, gains or losses from portfolio interests or financial arrangements of a foreign managed fund in Australia from the calculation of the fund's taxable income, and that of its non-resident investors.

The exemption will not apply to the extent that withholding tax is currently payable on the income. 

The exemption will also not cover income or gains from an interest, other than a portfolio interest in a publicly traded company, in taxable Australian property.

The measure, which is part of the investment manager regime (IMR), will be backdated to 1 July 2011 and will be restricted to foreign managed funds of countries that are recognised by Australia as engaging in effective exchange of information.

"The IMR will provide certainty of tax treatment for the funds management sector, which in Australia has $1.8 trillion of funds under management - $61 billion of which comes from offshore, and will further enhance Australia as a financial services centre in the Asia Pacific region," Minister for Financial Services and Superannuation, Bill Shorten said on Friday.

"It is difficult to overstate the significance of the changes announced today," Financial Services Council director of policy Martin Codina said.

"By removing a major export barrier for Australian-based fund managers, Australia will attract more foreign investment, especially from the Asia Pacific Region," he said.

The announced exemption represents the third stage to the IMR and legislation for the first two stages is expected to be introduced into Parliament in the first half of 2012.