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09 Apr 15 Taxation of managed investment trusts

On 9 April 2015 the Commonwealth Treasury released exposure draft legislation intended to modernise the tax rules for eligible managed investment trusts (MITs) and increase certainty for both MITs and their investors. The exposure draft is entitled the Tax Laws Amendment (New Tax System for Managed Investment Trusts) Bill 2015.

The key features of the new tax system for eligible MITs include:

  • an attribution model for determining member tax liabilities, which will allow amounts to retain their tax character as they flow through a MIT to its members
  • the ability to carry forward understatements and overstatements of taxable income, instead of re-issuing investor statements
  • deemed fixed trust treatment under the income tax law
  • upwards cost base adjustments to address double taxation, and
  • legislative certainty about the treatment of tax deferred distributions.

The new tax system for managed investment trusts follows recommendations that the Board of Taxation made in its Report on the Review of the Tax Arrangements Applying to Managed Investment Trusts in August 2009.

The Board concluded that the current taxation arrangements applying to trusts create a level of complexity and uncertainty for managed investment trusts that is unacceptable for an industry of its significance to the economy. This is primarily the result of the current trust taxation provisions in Div 6 of Pt III of the Income Tax Assessment 1936 being largely developed at a time before trusts were used in Australia as widely-held, commercially operated, collective investment vehicles.

The amendments to introduce a new tax system for managed investment trusts are proposed to apply to income years starting on or after 1 July 2015.

The amendments to extend the scope of eligible investors for the purpose of the widely held requirements that must be satisfied for a trust to qualify as a managed investment trusts will apply from 1 July 2014.

Transitional rules, which are still to be developed, will ensure the amendments to clarify the taxation treatment of tax deferred distributions will apply from 1 July 2011.

The Treasury is calling for submissions on the proposed legislation. The closing date for submissions is Thursday, 23 April 2015.

The full text of the exposure draft legislation and explanatory material is available here.


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