Australia Adds Detail To MIT Reforms
Tuesday, June 22, 2010
Australia’s Assistant Treasurer, Nick Sherry, has announced the detail
of amendments to the definition of a managed investment trust (MIT) which widen
the scope of trusts to benefit from taxation concessions available through the
capital account and withholding tax arrangements.
The amended definition of a MIT will more closely align the definition used
across different parts of the tax law and better matches widespread industry
practice. It will ensure a range of trusts that were previously excluded will
be eligible for the MIT withholding tax regime and capital account election.
The new definition includes: an extension of the widely held rules for trusts
that are unregistered wholesale funds to all wholesale funds whether registered
or not; the insertion of a new widely held rule for registered funds that allows
a specified widely held entity to hold between 25% to 60% of the qualifying
MIT; and an expansion in the widely held rules for registered trusts to recognize
the nature of certain widely held members, including a reduction in the wholesale
member requirements from 30 to 25 wholesale members for wholesale trusts.
There is also an expansion in the list of entities considered to be widely
held to include foreign government pension plans, sovereign wealth funds and
certain government agencies and widely held foreign equivalents of a managed
investment scheme; and the inclusion of a regulation making power to provide
for further expansion of the list of entities considered to be widely held if
An 18-month start up period during which a trust may be treated as an MIT prior
to meeting the widely held requirements will be introduced, in order to facilitate
the entry of new trusts into the MIT industry, together with improved transitional
rules, including an extension of the transitional rules to seven years for trusts
that were MITs prior to these amendments.
There is also a requirement that a substantial proportion of investment management
activities undertaken in relation to the assets of the fund connected with Australia
are to be carried out in Australia. No form of management rule will be applied
to non-Australian assets and the substantial proportion rule will not apply
in relation to the capital account election measure at all.
"These amendments will then better reflect general industry practices
and will ensure that while continuing to attract and retain foreign capital,
the Australian funds management industry continues to be supported and enhanced," Sherry said. "These changes build on a number of important existing
reforms, and will further the government's commitment to securing Australia's
place as a leading regional financial services centre."
"The government has already announced a new tax system for MITs, new rules
to allow MITs to make an election to have certain investments assets treated
on capital account and significant reductions in MIT withholding tax rates from
30% to 7.5% by 2010-11," he added. "The rules will ensure that appropriate
integrity arrangements are in place to ensure that only genuinely widely held
trusts with investment management activities substantially based in Australia
in respect of their Australian assets can be recognized as MITs."
"To allow sufficient time for funds and investors to adapt to the new
rules, we will also include very generous transitional arrangements," he