Further Changes to the Managed Investment Trust Tax Regime – 5 August 2013

On 5 August 2013, the Assistant Treasurer, David Bradbury, announced further changes to the Managed Investment Trust (MIT) tax regime, stating “these changes will further reduce compliance costs under the new regime and provide certainty to taxpayers”.

The Assistant Treasurer’s announcement comes in response to specific issues raised during the Government’s on-going consultation with the managed funds industry.

The proposed changes include:

• Dealing with Under and Over Distributions

Under the previously announced MIT measures, a trustee had the ability 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). Where an under exceeded the de minimis, the trustee would be assessed on the amount of tax shortfall at the top marginal tax rate if the trustee did not re-issue distribution or attribution statements to its beneficiaries. Where an over exceeded the de minimis, the trustee was required to re-issue distribution or attribution statements to its beneficiaries.

The Government has now announced that it intends to allow an under or over attribution of net income in excess of the de minimis that is not intentionally caused by the trustee to be carried forward. This change will however be subject to certain integrity measures.

• Changes to the Arm’s Length Rule.

Under the previously announced measures, MIT’s were subject to an Arm’s Length rule in relation to all transactions between common interests or related interests of a MIT. This rule ensured that entities could not circumvent the eligible investment business (EIB) rules.
The Assistant Treasurer has now announced that two types of services provided to a MIT by an associated entity will be carved out from the Arm’s Length rule where they have been provided between at cost and market value. These excepted services relate to:

– Services provided by a related entity to a MIT that the MIT could perform itself without breaching the EIB rules; and

– Services provided by the responsible entity of a MIT to the MIT that it could perform itself without breaching the EIB rules but cannot perform due to requirements in the Corporations Act 2001.

The Assistant Treasure has also restated the Government’s commitment to on-going industry consultation in relation to improving the MIT tax regime and ensuring that the regime provides certainty and maintains integrity having regard to industry practice.

Further detail on the announced changes can be found in the Assistant Treasurer’s media release. The changes are expected to be reflected in the exposure draft legislation.