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Australia Improves MIT Tax System

Wednesday, August 7, 2013

The Australian Government is to make two further changes to its proposed new tax system for managed investment trusts (MITs).

According to Assistant Treasurer David Bradbury, the amendments are being made in response to issues raised by the MIT industry. They are designed to "further reduce compliance costs under the new regime and provide certainty to taxpayers."

Reform of MIT tax arrangements has been on the table since May, 2010. At that time, the Government announced that MITs would be able to carry forward an under- or over-attribution of net income to a later income year without interest or penalty, subject to a de minimis threshold and various other conditions. An arm's length rule was to apply to all transactions between common interests or related interests or MIT.

The latest changes relate to both these initial proposals. The Government says that concerns have been expressed that the proposed tax treatment of the under- or over-attribution of net income may be unreasonable under certain circumstances, when compared to the "tax profile" of many MIT investors. It was also feared that the arm's length rule unnecessarily applies to certain services provided to a MIT by a related entity.

The Government will now allow an under- or over-attribution of net income in excess of the de minimis that is not caused intentionally by the trustee to be carried forward. In addition, specified services will be "carved out" from the application of the proposed arm's length rule between a MIT and an associate.