Australia: Managed Investment Trusts, Collective Investment Vehicles and Investment Manager Regime

Australian Tax Update
Last Updated: 15 August 2010
Article by Jock McCormack and Anshu Maharaj

The Australian Government has recently passed legislation that has clarified and widened the definition of managed investment trusts (MITs) to apply to certain unregistered wholesale funds and government owned funds in respect of the withholding tax concession. This amended definition will also be relevant for trusts making the capital account election. These recent changes should attract further foreign investment in Australian funds, assist Australian fund managers to compete with fund managers around the world and enhance our credentials as a regional finance hub.

The Australian Government has also announced a review by the Board of Taxation into the taxation arrangements that apply to collective investment vehicles and will consider the design of an investment manager regime for investments by foreign residents managed in Australia. Australian Treasury in consultation with the Board has been asked to report to the Government by 31 October 2010 on an early delivery of an investment manager regime.

Withholding Tax Concession

Tax Laws Amendment (2010 Measures No. 3) Act 2010 (Amending Act) which received Royal Assent on 29 June 2010, introduced a number of changes to the withholding tax rules including:

  • Widened the MIT withholding tax concession to unregistered wholesale funds and certain Government owned funds.
  • Expanded the list of qualified investors to allow funds greater ease to qualify as widely held.
  • Introduced a new requirement to have a substantial proportion of the investment management activities of Australian assets carried out in Australia.

In introducing and amending the withholding tax rules, the Australian Government is endeavouring to promote Australia's funds management competitiveness and reputation; to attract further foreign investment in Australian property, infrastructure and other asset management trusts; and to more generally support Australia's role of becoming a stronger financial hub in the Asia-Pacific region.

The withholding tax changes were originally announced by the Australian Government in its annual budget of 13 May 2008. It subsequently introduced legislation on 4 June 2008 which provided a significant reduction in withholding tax (from 30% progressively to 7.5% over three years) on certain distributions (predominantly rental income and certain capital gains) from Australian MITs to specified foreign investors. The 7.5% rate applies to distributions made from 1 July 2010.

The withholding tax concession is available where the following requirements have been satisfied pursuant to Sub-division 12-H of Schedule 1 to the Tax Administration Act (Cth):

  • the trust must be a MIT;
  • the distribution must be a 'fund payment';
  • the recipient of the distribution must be an entity with an address outside Australia; and
  • the address of the recipient must be an 'information exchange country'.

These requirements, in light of the changes made by the Amending Act, are discussed in further detail below.


Previously, there was uncertainty as to whether unregistered wholesale funds could qualify as a MIT. The Amending Act has extended the definition of a MIT to allow certain unregistered wholesale funds and government owned funds to qualify as a MIT. A trust can only obtain the withholding tax concession where it satisfies all the following requirements. In our discussion below, we indicate the requirements that have been introduced/altered by the Amending Act.

For ease of reference, we have summarised these requirements at Appendix A.

Australian Resident Trust

The trust must have either an Australian resident trustee or the central management and control of the trust is in Australia.

Not a trading trust

In the case of a unit trust, the trust must not be a trading trust. For any other trust, the trust must not carry on a trading business or control/be able to control the affairs or operations of another person carrying on a trading business. That is, the trust must undertake passive investments (for example, holding land for rental income) rather than active business investments or operations. This requirement has been added by the Amending Act.

Australian investment management activities

A substantial proportion of the investment management activities in respect of Australian assets (including taxable Australian property) must be carried out in Australia. This requirement has also been added by the Amending Act.

Managed Investment Scheme (MIS):

The trust must be an MIS as defined in the Corporations Act 2001 (Cth). Generally, an MIS is where members pool money to produce financial benefits and the members do not have day-to-day control of the scheme.

Widely held

This requirement varies depending on whether the fund is a registered retail fund, registered wholesale fund or unregistered wholesale fund and these are discussed below. This requirement has been altered by the Amending Act. Trusts that are in a start-up or wind-down phase will be deemed to have met the widely held requirements in certain circumstances.

Registered retail fund

A registered retail fund will be widely held where one of the following is satisfied:

  • Units in the fund are listed on an approved Australian stock exchange.
  • Fund has at least 50 members – tracing through eligible entities (refer to Appendix B for a list of eligible entities) is allowed in calculating the number of members. In particular, the interest in the MIT held by an eligible entity is multiplied by 50 and rounded up to give the number of members in respect of the interest held by the eligible entity.
  • Fund satisfies the '25/60% rule' – that is, an eligible entity (refer to Appendix B for a list of eligible entities) has an interest of more than 25% in the fund at the time the first fund payment is made and at no time does an entity (other than eligible entities) have an interest of more than 60%.

Registered wholesale fund

A registered wholesale fund will be widely held where one of the following is satisfied:

  • Fund has at least 25 members – tracing through eligible entities (refer to Appendix B for a list of eligible entities) is allowed in calculating the number of members. Please refer to the discussion above in respect of registered retail funds.
  • Fund satisfies the '25/60% rule' – refer to the discussion above in respect of registered retail funds.

Unregistered wholesale fund

An unregistered wholesale fund will be widely held where it has at least 25 members. Tracing through eligible entities (refer to Appendix B for a list of eligible entities) is allowed in calculating the number of members. Please refer to the discussion above in respect of registered retail funds.

Not closely held

A foreign resident individual cannot have an interest in the MIT of 10% or more and the trust cannot be closely held. This closely held requirement varies depending on whether the fund is a retail or wholesale fund. In the case of a retail fund, 20 or fewer persons cannot have a total interest in the fund of 75% or more. In the case of a wholesale fund, 10 or fewer persons cannot have a total interest in the fund of 75% or more. These requirements were added by the Amending Act.

Licensing requirements

A wholesale fund must be operated or managed by a financial services licensee or by an authorised representative of such licensee. Similar licensing requirements are imposed on retail funds by the Corporations Act 2001.

Fund Payment

The withholding tax concession applies only to fund payments, that is distributions primarily of rental income and capital gains from taxable Australian property by Australian managed investment trusts. The nature of the underlying income of Australian trusts is preserved on distribution from these trusts, including to non-residents.

Further, the new withholding tax rules will not apply to dividend, interest, royalty income and capital gains from non-taxable Australian property. Therefore, only distributions of Australian sourced net income of these trusts to non-residents will benefit from the new rules.

Recipient entity

The reduced withholding tax rate of 7.5% is only available where the investor has an address outside of Australia or where the MIT is authorised to make the payment to a place outside Australia.

Information exchange country

In addition, the withholding tax concession is only available for investors resident in a country with which Australia has an effective Exchange of Information (EOI) arrangement on tax matters with Australia. These countries are listed in Appendix C. Otherwise, fund payments for foreign investors are subject to the 30% withholding tax rate.

Transitional rules

The Amending Act introduces seven year transitional rules - that is, the amendments generally do not impact on a trust that qualified as a MIT before 26 May 2010 until the 2018 income year.

Capital Account Election

In addition to the withholding tax concession, the Australian Government has introduced a capital account election for MITs. This election allows a MIT to hold eligible assets (such as, shares in a company, units in a unit trust and land, including an interest in land) on capital account resulting in income from those assets that would otherwise be on revenue account, being subject on disposal to the capital gains tax regime. Therefore, investors may be concessionally taxed in respect of these gains due to the capital gains discount which is available to individuals and trusts (up to a discount of 50%) and complying superannuation funds (up to a discount of 33 1/3%) where the asset has been held for more than 12 months.

Collective Investment Vehicles (CIVs)

On 12 July 2010, the Australian Government announced a review by the Board of Taxation into the taxation arrangements that apply to CIVs. This review was initiated on 11 May 2010 as part of the Government's annual 2011 budget.

In particular the review by the Board will consider the following:

  • the nature and extent of, and reasons for, any impediments to investment into Australia by foreign investors through CIVs;
  • the benefits of extending tax flow-through treatment for CIVs, including the degree to which a non-trust CIV would enhance industry's ability to attract foreign funds under management in Australia;
  • whether there are critical design features that would improve certainty and simplicity and enable harmonisation, consistency and coherence across the various CIV regimes, including by rationalisation of regimes where possible; and
  • examine the treatment of Venture Capital Limited Partnership vehicles in a way that recognises its policy objectives.

As part of its review, the Board has also been asked to examine and report on the tax treatment of CIVs, having regard to the MIT tax framework and including whether a broader range of tax flow-through CIVs (such as corporate CIVs) should be permitted.

The Board has been asked to report to the Government by 31 December 2011.

Investment Manager Regime (IMR)

The Government also requested that the Board consider the design of an IMR for investments by foreign residents managed in Australia as part of its review of CIVs. On 11 May 2010, the Government announced the following process for developing the key features of an IMR:

  • First stage - release of a consultation paper on the taxation of conduit income of managed funds.
  • Second stage - review of the Australian and foreign income aspects of a comprehensive IMR as part of a broader review into CIVs by the Board.

Treasury has been consulting with industry stakeholders in respect of the proposed IMR and is intending to report to the Government by 31 October 2010. However, due to a federal election being called, the Government is currently in caretaker mode and policy development has been halted pending the outcome of the federal election.

The Government has also recently committed to establishing a Centre for International Finance and Regulation.

Appendix A

Summarised requirements for a MIT - for purposes of the withholding tax concession.

Fund Type
MIT Requirements Retail Registered Wholesale
Registered Unregistered
Australian Resident Trust Yes Yes Yes
Substantial proportion of investment management activities in Australia (1) Yes Yes Yes
Managed Investment Scheme Yes Yes Yes
Widely held requirement (special rules for startup or winddown phase) Listed or at least 50 members or satisfies '25/60%' rule At least 25 wholesale members or satisfies '25/60%' rule At least 25 wholesale members
Specified investor tracing for widely held test? Yes Yes Yes
Specified licensing Requirements Yes (2) Yes Yes
MIT Exclusions
Closely held trust '20/75%' rule '10/75%' rule '10/75%' rule
Foreign individual holds 10% or more Yes Yes Yes
Trading trust Yes Yes Yes

1. There are similar requirements to the withholding tax concession in respect of the capital account election except for this requirement (ie substantial proportion of investment management activities in Australia is not required for the capital account election).
2. This requirement is pursuant to the Corporations Act 2001.

Appendix B

List of Eligible Entities

  • Life insurance company.
  • Complying superannuation fund, a complying approved deposit fund or a foreign superannuation fund, being a fund that has at least 50 members.
  • Pooled superannuation trust that has at least one member that is a complying superannuation fund that has at least 50 members.
  • A managed investment trust.
  • An entity recognised under a foreign law as being used for collective investment by means of pooling the contributions of at least 50 members as consideration to acquire rights to benefits produced by the entity, if the members of the entity do not have day-to-day control over the operation of the entity.
  • Certain Australian government owned entities.
  • Certain foreign entities established for the principal purpose of which is to fund pensions (including disability and similar benefits).
  • Certain foreign government owned investment entities.

Appendix C

Countries with which Australia has an effective EOI arrangement on taxation matters as at 29 June 2010.





Czech Republic
















Netherlands Antilles

New Zealand


Papua New Guinea





South Africa


Sri Lanka




United Kingdom

United States of America


Antigua and Barbuda

British Virgin Islands

Isle of Man


© DLA Phillips Fox

DLA Phillips Fox is one of the largest legal firms in Australasia and a member of DLA Piper Group, an alliance of independent legal practices. It is a separate and distinct legal entity. For more information visit

This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances.

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