As we enter 2016, Australian Managed Investment Trusts face some major changes; the Managed Investment trusts tax reform was finally discussed in the Australian Parliament in December of 2015. The proposed new tax system aims to leverage a more modernised approach to the tax rules for eligible MITs by increasing operating flexibility and reducing compliance costs in order to enhance Australia’s position in the international asset management industry. These proposed changes are in addition to the existing MIT measures which include the capital account election and the Fund Payment withholding tax regime.
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%.
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:
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.
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
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