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Managed investment trusts and the impact of foreign capital and reserve losses


The managed investment trust (MIT) withholding tax regime requires that amounts be withheld from certain “fund payments” and amounts attributable to fund payments. The regime was intended to provide a concessional rate of taxation in order to attract foreign capital. However, amendments to the regime in 2008 have had the unintended effect of exposing non-resident beneficiaries to tax in circumstances where they have made no overall gain at all. This article examines the operation of the regime in the light of the 2008 amendments.

The article also explores the treatment of deductible amounts incurred in deriving foreign income, and argues that, in contrast to the treatment of capital losses in respect of non-taxable Australian property assets, net foreign losses are not required to be quarantined for MIT withholding tax purposes. The author suggests that the law should be amended to reverse the effect of the 2008 amendments and to clarify the treatment of foreign losses.

Author profile

Christopher Colley CTA
Chris, CTA, is a Director at Greenwoods & Herbert Smith Freehills. Chris advises corporate and government clients on real estate investments and trusts, as well as share buybacks and international financial transactions. He has wide experience in mergers and acquisitions, cross-border leasing, international bond issues, securitisation, real estate development, structured investment products and GST matters. He is a member of an Australian Taxation Office working group helping to implement new Taxation of Financial Arrangements provisions and also lectures at the University of Sydney. - Current at 17 March 2016
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