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Australia Delays Trust Tax Overhaul

Thursday, April 21, 2011

Managed Investment Trusts (MITs) have an extra year to get ready for the new MIT tax system after the Australian federal government announced that it will defer the start date of the new laws from July 1, 2011 to July 1, 2012.

In announcing the deferral, the Assistant Treasurer and Minister for Financial Services and Superannuation, Bill Shorten, said that: "Deferring the start date by 12 months will provide MITs, and other parts of the financial services industry, with sufficient time to make any necessary trust deed amendments and systems changes to operate effectively within the new MIT tax system".

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. A discussion paper was released towards the end of last year as part of the governmentís plan to overhaul the taxation treatment of MITs and remove uncertainties.

The government will introduce amendments to the tax law to prevent any income tax consequences that might arise from a resettlement where a MIT changes its trust deed (or other constituent documents) to meet the 'clearly defined rightsí requirement under the new MIT tax system.

"These amendments will ensure MITs needing to amend their trust deeds to be eligible for the attribution method of determining tax liabilities and deemed fixed trust treatment, are not deterred by income tax consequences from making the necessary amendments," the Assistant Treasurer said.

The government will also make a minor change to the proposed de minimis rule allowing MITs to carry forward under and over distributions into the next income year without adverse taxation consequences. This change will replace the alternative test of the de minimis threshold of a 'prescribed dollar value per unit' with a '0.4 of 1% of net assets' test. The primary test of 5% of the MITís taxable income will be unchanged.

"The proposed 'percentage of net assets' test is superior to the 'prescribed dollar value per unit' test because it will operate more equitably for MITs with a similar net worth but a different number of units. The test will provide an appropriate alternative test in years of low returns, when the primary test could be unintentionally restrictive," the Assistant Treasurer said.

The government says that is committed to implementing a new tax system for MITs that will increase certainty, reduce complexity and lower compliance costs for MITs and their investors. The government intends to continue consulting with industry on the implementation of the new MIT tax system and plans to undertake public consultation on draft legislation in the coming months.