Whether To Stick Or Twist? The New MIT Regime
The new regime for taxing Managed Investment Trusts (“MIT”) comes into effect for income years commencing on or after 1 July 2016 (with the ability to opt-in from 1 July 2015). The new MIT regime is optional with the MIT’s that adopt it being classed as an Attribution Managed Investment Trust (“AMIT”) (essentially a special class of MIT).
To be classified as AMIT, an MIT must meet a number of basic conditions which include the trustee of the MIT making an irrevocable choice for the regime to apply and for the MIT to have ‘clearly defined’ member interests. To have clearly defined interests a number of criteria need to be satisfied which include:
To the extent that an MIT is already a registered scheme under the Corporations Act, it will be deemed to have clearly defined interests.
The attribution provisions for AMIT’s allow for the allocation of trust components to members based on an ‘attribution’ of components of income and capital, made on a fair and reasonable basis, rather than the traditional ‘present entitlement’ to distributable income. AMITs will be required by law to provide members with annual tax statements (“AMMA Statement”), no later than three months after the end of the income year together with certain other cost base information to members. If the new regime is adopted caution should be exercised in dealing with the existing present entitlement provisions to ensure that they remain available if required.
The new provisions are complex and far reaching in their impacts on fund managers, custodians and unit holders. As such, trustees or other relevant parties should be asking themselves whether they wish to elect into the new regime. From 1 July 2017 the ATO has advised that it may be less flexible in the administration of the existing tax regime than is currently the case with the hope that this will encourage a transition to the new regime. Another benefit of the new regime is to provide more flexibility for AMIT’s to deal with perennial problem of “unders and overs” such as reissuing AMMA’s or dealing with the matter in the year of discovery depending on the trust deed.
It is generally agreed that existing trust deeds will need to be amended if an MIT wishes to transition into the new regime. Some of the changes will be “must haves” and “others nice to haves”, and these changes need to be considered in detail and with reference to the potential impact of a resettlement of the trust (eg where the changes constitute more than what is required for compliance for the new regime).
Implementation of the new MIT regime will require changes to operations, service arrangements, reporting to investors and product planning and development. All trusts that are MITs should consider whether (and when) to adopt the new rules, and what the approach to the new regime will be.
Should you require and assistance with the transaction or any other matters concerning MIT’s please contact ESV Partners Chris Kirkwood, Tim Valtwies or David Prichard on 02 9283 1666.