Significant changes to the taxation of managed investment trusts
will be in place by 1 July 2011, which should lead to greater
certainty, reduced compliance costs, and (in some cases) less tax
payable. The Assistant Treasurer Senator Nick Sherry announced the
changes today at an IFSA event held at Clayton Utz' Sydney
The four changes form part of the Federal Government's
response to the Board of Taxation's report into tax
arrangements applying to MITs. Of the 48 recommendations made by
the report, the Government has accepted 38.
Attribution, not entitlement, as basis for taxation
Currently, investors can be assessed on capital gains paid to
other beneficiaries or retained by the trust. The Federal
Government will replace the system based on entitlements with one
based on attribution.
MITS with investor beneficiaries with clearly defined
rights/entitlements under the trust's constituent documents
will be able to elect to use an attribution system of taxation as a
basis for determining when an investor is liable to taxation. Those
investors will only assessable on the taxable income that the
trustee allocates to them on a fair and reasonable basis,
consistent with their entitlements under the trust deed or the
trust constituent documents.
"Over or under" distributions
The Federal Government will introduce a legislated carry-forward
system for all MITs to deal with "over or under"
distributions within a five per cent cap, meaning that MITs will
not have to reissue statements or investors revisit their tax
Removing double taxation
There's a potential for double taxation when the
distribution to unit-holders is less than their share in the
trust's taxable income.
To deal with this, the Federal Government will complement the
existing capital gains downward cost base adjustment with an upward
cost base adjustment in some circumstances.
Abolition of Division 6B ITAA
The Board of Taxation identified Division 6B of the Income Tax
Assessment Act 1936, which relates to corporate unit trusts, as
surplus to requirements and it will be repealed. As well, certain
complementary amendments are to be made to Division 6C of the
Income Tax Assessment Act 1936.
The next step is a consultation process on the implementation of
these four reforms. The Assistant Treasurer said that a paper on
detailed design issues will be released for consultation soon.
Of the Board of Taxation's remaining recommendations, the
Federal Government is planning to consider those at some stage in
the future and issue a response.
Also on the horizon for MITs are a proposed change to their
definition, and allowing them to elect to have the capital gains
tax regime as the primary code for taxing gains and losses on the
disposal of key investments.
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An actuarial review of the Invensys Australia Superannuation Fund showed it to be in surplus to the tune of $189.2 million. In mid 2003, the Invensys Group proposed to the trustee that the surplus be repatriated to the principal employer in the group.
CIVs will have flow-through status for tax purposes and similar criteria as the MITs, to encourage foreign investment.
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