New Tax System for Managed Investment Trusts

The Current Tax system:

At present, Australia operates an MIT regime targeted at foreign investors looking to make passive investments in Australian assets, particularly real estate and infrastructure assets. Under these rules, any gains on realisation of those assets are exempt from tax in the hands of an offshore investor (with the exception of interests in Australian real estate). The current MIT regime also imposes a final and concessional tax on such gains, generally at the rate of 15%.

The new proposed Regime:

Known as the Attribution Manage Investment Trusts Regime (AMIT), these proposed reforms will entitle MITs automatic qualification as a ‘fixed trust’ for tax purposes – making utilisation of tax losses easier.

Under AMIT, Managed Investment Trusts (MITs) can be one of the following 3 types:

1. A regular MIT (an entity that is eligible to make a ‘capital account’ election deeming the MIT to hold certain assets on capital account).
2. A withholding MIT (similar to a regular MIT) is eligible for concessional withholding rates for certain payments to non-residents in agreed jurisdictions. Qualification deems the MIT must be a managed investment scheme with substantial investment in Australian activities.
3. An AMIT, or a withholding AMIT – subject to the new attribution regime under the Income Tax Assessment Act 1997.

Key Benefits for eligible AMIT’s:

• The trustee of an AMIT will be able to attribute particular income and offsets to members on a fair and reasonable basis.
• The beneficiary’s cost base can be adjusted when the beneficiary is taxed on more income than they receive.
• The attribution model for determining member tax liabilities will allow amounts to retain their tax character as they flow through a MIT to its members.
• Funds will not need to re-issue investor statements but have the ability to carry forward understatements and overstatements of taxable income.
• The regime will open opportunities for new products as the new regime facilities segregated tax classes within a single trust.

Potential Implications:

Alongside these benefits there will be some required changes to MIT risk management procedures. The greater flexibility afforded to trustees through these changes means a focus on ensuring solid risk management practices is essential. The regime will also mean the AMITs will have new requirements for dealing at arm’s length. All third party arrangements will need to be reviewed to ensure they are regarded as being dealt with at arms-length for tax purposes as the new regime introduces specific dealing rules with regards to this. Any amount of non-arm’s length income will be taxed to the trustee at the penal rate of 47% and this rule is applied generally across transactions.

If the bill is passed it will widely apply from July 1, 2016.

How can Apex Help?

Apex’s systems enable our teams to stream income and allocate distributions for multiple classes within a MIT. This means that our clients will be able to place multiple strategies/ branding and/or fee structures under one structure, which should in turn reduce entry costs and provide scale on overall operation more quickly. We can support you in this transition and ensure you have the necessary reporting capabilities to qualify for the regime whilst complying with the rules.

For sturdy risk management procedures Apex can deliver risk reports for funds tailored to asses the requirements of the regime. It is likely there will be a necessity for a number of changes to the constitutions of trusts opting to take advantage of this regime and is therefore essential to partner with a provider with experience.

For more information on Apex’s Australia tax services Click Here