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10 May 10 New tax system for Managed Investment Trusts

In media release No 2010/086, issued on 7 May 2010, the Assistant Treasurer, Senator Nick Sherry, announced the Government will put in place a new tax system for Managed Investment Trusts (MITs) for commencement on 1 July 2011.

The reforms are the Government's response to the Board of Taxation's report into the tax arrangements applying to MITs, which the Assistant Treasurer also released on 7 May 2010.

The $120 million overhaul includes a dedicated new tax regime for MITs that will remove longstanding investor uncertainty in the interaction of Australian tax and trust law.

The key features of the new MIT tax system are:

  • the provision of an elective "attribution" system of taxation to replace the present entitlement system – the concept of what trust income means was the subject of a High Court decision in recent weeks that failed to provide judicial clarity;
  • this new attribution system will provide that investors will be taxed only on the income that the trustee allocates to them on a fair and reasonable basis, consistent with their entitlements under the trust deed or the trust's constituent documents;
  • establishing the ability to deal with "over or under" distributions within a five per cent cap so that trusts are not required to reissue statements and investors are not required to revisit tax returns;
  • removing double taxation; and
  • abolishing Division 6B of the Income Tax Assessment Act 1936 which relates to corporate unit trusts and which the Board found redundant.

In establishing the new MIT tax system, the Government is accepting 38 of the Board's 48 recommendations. The Government will undertake further sector and community consultation on the details and supporting legislation for the new tax system for MITs in coming months.

The Board's recommendations and the Government's full responses form an attachment to the media release.

The Assistant Treasurer commented on the proposed changes in an address entitled "A New Tax System for Managed Investment Trusts" delivered to the Investment and Financial Services Association and Clayton Utz Industry Luncheon in Sydney New South Wales on 7 May 2010.


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