Proposed New MIT Regime – Wave 3

The Government has announced that new draft legislation outlining the introduction of the third taxation regime for Managed Investment Trusts (MIT) will be released before Christmas 2014.

The introduction of a separate MIT regime was first announced by the Federal government in 2010.  There have since been two ‘special’ MIT regimes enacted,  with the first regime providing for concessional withholding tax rates for distributions by MITs on certain types of income paid to foreign investors.  The second regime allows for gains realised by a MIT from disposing of certain types of assets to be taxed on capital account and not revenue account.

The proposed third regime for MITs is intended to provide greater certainty to trustees and investors in relation to the flow through treatment of the MIT.  Under the proposed changes, a unitholder’s tax exposure will be on an attribution basis, that is, each unitholder’s share of the taxable income of the MIT will be attributed to them as determined by the trustee (which must be fair and reasonable and consistent with the members’ rights under the deed and other constituent documents).  This treatment is contrast to the current tax framework which relies on ‘present entitlement’ and ‘trust income’ which can often result in practical and timing difficulties for trustees and unitholders from a tax perspective.

It is noted that the proposed measures will only apply to qualifying MITs, whose unitholder’s have ‘clearly defined rights’. In this regard, it may be necessary going forward to review any existing deeds and other constituent documents to ensure that this requirement for ‘clearly defined rights’ can be satisfied.

It is understood that the proposed measures will also impose additional compliance and reporting requirements on those Qualifying MITs, however the extent of this is not known at this stage.

It is further understood that the draft legislation will provide for a commencement date of 1 July 2015.

We will provide further information regarding the third MIT regime once the exposure draft legislation is released, or sooner subject to any announcements by the Government.

For all questions concerning managed investment trusts, please contact Justin Epstein on +612 8277 0000.