Managed Investment Trusts tax changes a step closer!

The Gillard Government released a discussion paper on the new tax system for Managed Investment Trusts (“MITs”) on 18 October 2010 (the Discussion Paper).  The Discussion Paper is in response to the Board of Taxation’s recommendation that a new tax regime be established for MITs.

The proposals put forward by the Government include:

New tax rules for MITs

  • MITs to be subjected to their own new rules rather than the general trust rules in Division 6 of the 1936 Act
  • where beneficiaries have clearly defined rights or entitlements, the trustee can choose to apply an ‘attribution’ concept to trust income instead of ‘present entitlement’ under Division 6
  • beneficiaries rights and entitlements will be determined under the trust’s constituent documents, such as the deed and a product disclosure statement
  • if the extent to which a beneficiary can benefit cannot be significantly affected by the exercise of a power of the trustee, then the rights or entitlements of the beneficiary will be clearly defined
  • registered managed investment schemes may be able to access the attribution methods more easily as they are bound by additional regulation under the Corporations Act
  • the Government is considering a form of roll-over relief for MITs who resettle by amending their constituent documents to provide beneficiaries with clearly defined rights or entitlements
  • and under the ‘attribution’ method, trustees must attribute taxable income to beneficiaries in a fair and reasonable way.

Dealing with past errors

  • Trustee’s will be able to carry forward ‘unders’ or ‘overs’ of taxable income where it is within the de minimis threshold of:
    •  5% or less of taxable income or
    • a prescribed dollar amount per unit to be determined

and it will not be necessary for the trustee to reissue distribution statements

  • the trustee will need to reissue distribution statements or re-attribute tax income where the under or over exceeds the de minimis amount
  • beneficiaries will be required to adjust the cost base of their units upwards or downwardsdepending on whether the MIT’s tax income exceeds or is less than the trust income allocated to a beneficiary
  • legislation will be introduced to ensure the character and source of income on distribution is retained and flows-through to beneficiaries, subject to beneficiaries who hold their units on revenue account
  • the information to be contained in distribution statements will be updated accordingly with the form of the amendments when enacted and
  • product disclosure statements, required by the Corporations Act, will need to contain statements about the MIT’s tax treatment.

The reforms contained in the Discussion Paper follow the recent enactment of an MIT capital election and a reduced withholding rate of 7.5% for most MIT payments to foreign residents.

There are a number of substantial measures contained in this Discussion Paper which will affect compliance and reporting practices of MITs.  The Government is calling for submissions by 15 November 2010 from practitioners and MIT industry participants.

The Board of Taxation has been at the forefront of the MIT reforms to modernise the taxation of managed investment trusts, which commenced at the start of 2008 and culminated with 48 recommendations being made to Government in late 2009.  Hall & Wilcox tax partner, Keith James, is a member of the Board of Taxation and was a member of the working group responsible for the Board’s report about managed investment trusts.


Harry New

Harry leads our financial services team and focuses extensively on financial services law and corporate advisory.

Keith James

Keith is a taxation lawyer and a consultant for the firm. His practice includes tax disputes and private clients.

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