Australia Consults On New MIT Tax System
Tuesday, October 19, 2010
Australia’s Assistant Treasurer and Minister for Superannuation and Financial
Services, Bill Shorten, has released a discussion paper on the design and implementation
details of the government's new income tax system for managed investment trusts
"This paper is one further step in the government's plan to overhaul the
taxation treatment of MITs and remove uncertainties," said the Assistant
Treasurer. "Once implemented, the government's reforms will increase certainty
for managed funds, reduce complexity and lower costs for MITs and their investors."
Broadly, MITs are collective investment trusts that are listed, widely held
or held by certain collective investment entities. Australian resident retail
and wholesale unit trusts are both eligible to be an MIT.
Key features of the new MIT tax system include an elective 'attribution' system
of taxation (in lieu of the present entitlement to income method), under which
investors will be taxed only on the income that the trustee allocates to them
on a fair and reasonable basis, consistent with their entitlements under the
trust deed or the trust's constituent documents.
It will also establish the ability to deal with 'under' or 'over' distributions
within a 5% cap so that trusts are not required to reissue distribution statements
and investors are not required to revisit tax returns; and MIT unit holders
will be able to make, in certain circumstances, upward adjustments to the cost
base of their unit holdings to reduce the extent to which double taxation might
otherwise arise. In addition, MITs will be treated as fixed trusts for various
taxation law purposes, such as the trust loss rules.
Two major features of the government's new tax system for MITs have already
been legislated. The trustee of a MIT can choose to apply the capital gains
and losses regime to the disposal of eligible assets. Also,
a reduced rate of final withholding tax (of 7.5%) applies to most foreign investors
on fund payments from an MIT.
A substantial proportion of the investment management activities carried out
in relation to the trust in respect of Australian assets under management should
be undertaken in Australia, in order to attract the withholding tax concession.
This is not necessary for capital account treatment.
The government announced the new tax system for MITs in May this year, and
its changes are to have effect from July 1, 2011.
Submissions on the discussion paper are requested by November 15, 2010. A further
round of public consultation on exposure draft legislation and associated explanatory
materials is planned for later this year. It is expected that legislation will
be introduced into the Parliament in the first half of 2011.