The government has released exposure draft legislation introducing a new tax system for managed investment trusts. It is proposed this new system will broadly apply to income years starting on or after 1 July 2015 (the deferred start date as announced in the 2014/15 Federal Budget).

The new rules will apply to trusts that are managed investment trusts (MITs) whose members have clearly defined interests in relation to the income and capital of the trust. Such trusts are referred to in the draft law as attribution MITs or AMITs. The amendments also broaden the eligibility criteria for a trust to be an MIT and insert a modified definition of MIT into the ITAA 1997, particularly with regard to the widely held requirements.

Under the new tax system, contained in the proposed Div 276 of ITAA 1997,

  • attribution MITs will qualify as a fixed trust for tax purposes.
  • They will also be able to attribute different types of income (eg taxable income, exempt income, non-assessable non-exempt income) to their members on a fair and reasonable basis, thus enabling the tax character of an amount to be retained as it flows through the trust.

Other features of the new system include the ability to reconcile, in a later income year, variances between amounts actually attributed and amounts that should have been attributed to members using the “unders and overs” regime.

The draft legislation also contains other amendments as follows:

  • trustees of attribution MITs will be liable to pay tax in certain circumstances, eg if a discrepancy occurs resulting in taxable income of the attribution MIT not being fully attributed to members. 

  • PAYG withholding and withholding tax liability provisions will apply to attribution MITs and their members.

  • members will be able to make annual upward and downward adjustments to the cost bases of their interest in the trust.
  • the treatment of tax deferred distributions is clarified such that the distributions will be applied to reduce the cost base of membership interests that are CGT assets and the tax costs of those that are revenue assets (transitional rules to be developed will ensure this amendment applies from 1 July 2011).
  • the public unit trust rules in Div 6B of Pt III of the ITAA 1936 will be repealed, and 

  • the 20% tracing rules for public trading trusts in Div 6C of Pt III of ITAA 1936 will not apply to superannuation funds and exempt entities that are entitled to a refund of excess imputation credits. 

The new rules follow the recommendations made by the Board of Taxation in its report of August 2009. The Board concluded that the existing rules were complex and created uncertainty for this sector.

Comments – Comments on the exposure draft and accompanying explanatory materials may be submitted to the General Manager, Corporate and International Tax Division, The Treasury, Langton Crescent Parkes ACT 2600 or via email to Last day for comments is Thursday, 23 April 2015.

Source: Treasury website, 9 April 2015.

[IT 9/4/15]

Treasury, on Thur 9.4.2015, released exposure draft legislation which proposes to modernise the tax rules for eligible managed investment trusts (MITs) and increase certainty for both MITs and their investors. The proposed new rules aim to enhance the international competitiveness of Australian managed funds and promote the greater export of Australia’s funds management expertise.

The key features of the proposed new tax system for eligible MITs include:

  • an attribution model for determining member tax liabilities, which allows amounts to retain their tax character as they flow through a MIT to its members;
  • the ability to carry forward understatements and overstatements of taxable income, instead of re-issuing investor statements;
  • deemed fixed trust treatment under the income tax law;
  • upwards cost base adjustments to address double taxation; and
  • legislative certainty about the treatment of tax deferred distributions.

PROPOSED DATE OF EFFECT: The amendments to introduce a new tax system for MITs are proposed to apply to income years starting on or after 1 July 2015.

  • The amendments to extend the scope of eligible investors for the purpose of the widely held requirements that must be satisfied for a trust to qualify as a MIT are proposed to apply from 1 July 2014.
  • Furthermore, transitional rules, which are still to be developed, will be designed to help ensure the amendments to clarify the taxation treatment of tax deferred distributions will apply from 1 July 2011 (as announced in the 2014-15 Mid-Year Economic and Fiscal Outlook).

COMMENTS are due by 23 April 2015.

[LTN 66, 9/4/15]