More Amendments – This Time To Managed Investment Trusts

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May

More Amendments – This Time To Managed Investment Trusts

01.05.15

An exposure draft of the proposed legislation was recently released which proposes to amend the tax rules for eligible MITs, increasing certainty for both MITs and investors.

 

The current taxation arrangements create a level of complexity and uncertainty for MITs that is considered to be unacceptable given the significance of the industry to the economy. This uncertainty primarily arises because of the historic nature of the trust rules.  The proposed rules aim to enhance the international competitiveness and promote the greater export of Australia's funds management expertise.

 

The proposed new tax system will apply to eligible MITs whose members have clearly defined interests in the trust. These trusts will be referred to as attribution managed investment trusts (attribution MITs or AMITs).

 

BENEFITS

Under the proposals AMITs will have the following benefits:

  • the trust will qualify as a fixed trust for income tax purposes;
  • it will be able to attribute amounts of taxable income or exempt income to members on a “fair and reasonable basis” in accordance with their interests;
  • “unders and overs" regime will apply to discrepancies between the amounts actually attributed and the amounts that should have been attributed.

 

CAVEATS

As always, with advantages come increased compliance / obligations such as:

  • trustees of AMITs will be liable to pay tax in some circumstances; and
  • will need to ensure that the PAYG and withholding tax provisions apply appropriately to their members.

 

The proposals are expected to provide benefits to members of an AMIT because of the “flow-through" model ensuring amounts received by members retain the character they had in the hands of the trustee for income tax purposes.  It may also reduce the incidence of double taxation via changes to cost bases of their interests and clarify the taxation treatment of tax deferred distributions.

 

The amendments are proposed to apply to income years starting on or after 1 July 2015.  An extension of the scope of the definition of eligible investors for the purpose of the widely held requirements that must be satisfied for a trust to qualify as a MIT are proposed to apply from 1 July 2014.

 

We will of course keep you informed of the progress of the proposals and any significant changes as the legislation makes its way through the Houses.  Should you have any questions about the application of the changes please contact your relevant ESV Engagement Partner on 9283 1666.

 

Article by David Prichard