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Australia Redefines MITs

Tuesday, June 1, 2010

The Australian government has introduced legislation into parliament that will amend the definition of a managed investment trust (MIT) for access to withholding tax concessions, to more closely align the definition used across different parts of the tax law.

The legislation follows the government's comprehensive overhaul of the MIT regime through the development of a new tax system for MITs to start in July 2011; the passage of legislation to allow MITs to make an election to be treated on capital account; and the significant reductions in certain MIT withholding rates from 30% to 7.5% by 2010-11.

The latest reform follows extensive consultation with industry on earlier draft legislation. "These changes will better align the definition of an MIT across the relevant tax laws,” Assistant Treasurer, Nick Sherry, said, “but will also, subject to appropriate integrity measures, see wider access to MIT concessions for certain wholesale trusts, including certain domestic private equity entities."

The new definition of an MIT will apply for both withholding tax and the capital account election, and additionally includes the ability, for the first time, for wholesale unregistered managed investment schemes and government-owned managed investment schemes, commonly referred to as wholesale funds, to be treated as a MIT.

There will be a reduced membership rule threshold for these wholesale funds, with the minimum number of members required to meet the MIT definition falling from 50 to 30; and a special rule for counting the number of members that can be attributed to holdings by superannuation funds and specific other collective investment vehicles to determine whether the wholesale fund is widely held.

A greater flexibility for MITs will be allowed to apply an alternative test to the widely held test during start-up and wind-down phases, to better reflect the fact that MITs may have certain different characteristics during those phases.

"This package of changes will ensure access to the new MIT regime for a range of trusts that were previously either excluded or whose access was in question," the Assistant Treasurer added. "This will help to simplify tax laws and reduce compliance costs for the managed funds industry."

The new legislation also contains a number of integrity measures aimed at ensuring access to the MIT withholding tax arrangements and capital account election rules is focused on trusts that are appropriately widely held collective investment vehicles carrying on passive investment activities.

As such, the new definition includes a requirement that a retail MIT be either a listed trust or have 50 or more members to qualify as a widely held MIT, and that those 50 members be direct members of that retail MIT rather than traced members of investors in the retail MIT.

In addition, there will be a cap on individual foreign resident ownership of no more than 10% of the fund to be applied as a requirement to qualify as an MIT, together with a requirement that the fund is only engaged in passive investment activities – broadly that it is not a trading trust.

Furthermore, to support the Australian funds management industry, the new definition includes a requirement, for MIT withholding tax purposes, that the investment management activities of the fund are carried out in Australia.

There are transitional arrangements in that the legislation includes a special rule so that these changes to the definition of an MIT will not unfairly disadvantage existing investors and funds that qualified as MITs for withholding tax purposes prior to these changes. Such funds will still be able to qualify as MITs for withholding tax purposes for the next five years.

"Overall the amendments introduced today will support the Australian funds management industry and further boost Australia's ability to attract and retain foreign capital," Sherry concluded.

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The Report

Offshore Trusts Guide: Introduction

The History of Offshore Trusts
Development of Professional Competence in the Jurisdictions
What Future for the Trust?
The New Age of Transparency
The Swiss Association of Trust Companies
The Society of Trusts and Estates Practitioners

Offshore Trusts Guide: Jurisdictions

Bahamas

Bahamas: Legal Framework and Formation Rules and Fees
Bahamas: 2006 Private Trust Companies Legislation

Barbados

Barbados: Legal Framework and Formation Rules and Fees
Barbados: Supervisory and Licensing Regime and Fees

Bermuda

Bermuda: Legal Framework and Formation Rules and Fees
Bermuda: Supervisory and Licensing Regime and Fees

British Virgin Islands

British Virgin Islands: Legal Framework and Formation Rules and Fees
British Virgin Islands: Special Trusts Act 2003
British Virgin Islands: The Trustee Act 2003
British Virgin Islands: :Supervisory and Licensing Regime and Fees
British Virgin Islands: New Laws on Private Trust Companies
British Virgin Islands: New Private Trust Company Regulations

Cayman Islands

Cayman Islands: Legal Framework and Formation Rules and Fees
Cayman Islands: Supervisory and Licensing Regime and Fees

Cook Islands

Cook Islands: Legal Framework and Formation Rules and Fees
Cook Islands: Supervisory and Licensing Regime and Fees

Cyprus

Cyprus: Legal Framework and Formation Rules and Fees
Cyprus: Supervision, Licensing and Tax

Gibraltar

Gibraltar: Legal Framework and Formation Rules and Fees
Gibraltar: Legislation, Regulation and Supervision

Guernsey

Guernsey: Legal Framework and Formation Rules and Fees
Guernsey: Trusts Law 2007

Isle of Man

Isle of Man: Legal Framework and Formation Rules and Fees
Isle of Man: Supervisory and Licensing Regime
Isle of Man: Uses Clients and Tax Treatment

Jersey

Jersey: Legal Framework and Formation Rules and Fees
Jersey: Supervisory and Licensing Regime
Jersey: Trusts Amendment Act 2006
Jersey: Foundations

Liechtenstein

Liechtenstein: Legal Framework and Formation Rules and Fees
Liechtenstein: Regulation Supervision and Transparency
Liechtenstein: Characteristics of Liechtenstein Trusts
Liechtenstein: Foundations

Madeira

Madeira: Legal Framework and Formation Rules and Fees

Malta

Malta: Legal Framework and Formation Rules and Fees
Malta: The Trust and Trustees Act 2004

Mauritius

Mauritius: Legal Framework and Formation Rules and Fees
Mauritius: Characteristics of the 2001 Trusts Act
Mauritius: Additional Provisions of the 2001 Trusts Act
Mauritius: Tax Treatment

Monaco

Monaco: Legal Framework and Formation Rules and Fees

Nevis

Nevis: Legal Framework and Formation Rules and Fees

Panama

Panama: Legal Framework and Formation Rules and Fees
Panama: Requirements for Acting as Trust Company in Panama

Seychelles

Seychelles: Legal Framework and Formation Rules and Fees

Turks & Caicos

Turks & Caicos: Legal Framework and Formation Rules and Fees
Turks & Caicos: The Voidable Dispositions Ordinance

Vanuatu

Vanuatu Legal Framework and Formation Rules and Fees




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