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11 Feb 10 Minister comments on changes to the taxation treatment of managed investment trusts

In media release No 2010/021, 10 February 2010, the Assistant Treasurer, Senator Nick Sherry, commented on the changes to the tax treatment of managed investment trusts contained in Schedule 3 to Tax Laws Amendment (2010 Measures No 1) Bill 2010, introduced into Parliament on 10 February 2010. The Minister said that following important consultations with the managed  funds sector, the final form of the capital election reform is wider-reaching and more effective than the measure contained in  the draft legislation.

The final form of the measure includes:

  • an expanded concept of a MIT for the purposes of the measure to ensure state operated trusts and wholesale trusts are also able to qualify for the concession and an allowance for unregistered wholesale schemes to be eligible MITs where they are managed or operated by an Australian financial services licensee (AFSL) or an authorised representative of an AFSL holder;
  • an extension of the "widely held" concept for the purposes of the measure to Australian resident unit trusts where at least 75% of the beneficial interest in the capital and income of the trust is held by eligible widely held entities listed in the existing definition of a MIT, such as life insurance companies and complying superannuation funds and deposit funds and foreign superannuation funds with at least 50 members. [The draft measure had required the unit trust to be wholly owned by one or more of these entities to be treated as an MIT];
  • an inclusion of a "look through" mechanism in the form of a member tracing rule where units in an Australian resident unit trust are held by another trust, thereby treating members with a beneficial interest in the latter trust as members of the sub-trust for the purpose of the 50 member widely held rule. [The draft legislation did not include this provision but, as it is not unusual for investors participating in the wholesale investment market to be aggregators of many underlying investors through interposed funds, such as superannuation or pension funds, the inclusion of this tracing mechanism will widen access to the concession];
  • a further extension of the definition of a MIT in the measure to allow individuals who are wholesale clients to be included in the 50 member rule;
  • an extension of the scope of the "temporary circumstances rule" to cover situations where the trust may be closely held temporarily or where a trust does not meet the the MIT start-up 'seeding' period because of circumstances outside the control of the trustee;
  • not treating a return of contributed capital as assessable income for the purposes of the tax treatment of carried interest units;
  • an expansion of the specific asset types covered by the measure from shares, units and certain land investments to also include investments that are broadly identical to a share, that is equity interests in a company and shares in a foreign hybrid company; and
  • a confirmation that where a MIT does not elect capital account treatment, disposals of shares and units will be deemed to be treated on revenue account.


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