The much anticipated 2009-2010 federal budget has introduced
some significant changes that should have a positive impact on the
Funds Management Industry.
Treasurer Wayne Swan stated that the Government had a strong aim
to provide a nation building budget that will boost employment
through major spending on infrastructure to capitalise on the
economic recovery when the time comes.
In light of the Rudd Government's efforts to boost the
economy, we welcome some of the announcements made in the Federal
1. Tax Technical Amendments
The Government has introduced what looks like promising proposed
amendments to Australia's tax system. However, history has
shown that announcements made in the past Budgets have not lived up
to their expectations and the detailed legislation can often prove
to not look as promising. The Government should ensure that the tax
changes discussed below are more than just rhetoric and close
attention should be given to the detail when drafting the
1.1 Managed Investment Trust
From 1 July 2008, managed investment trusts ("MITs")
are able to make an irrevocable election to apply the capital gains
tax regime as the primary code for taxing certain disposals of
eligible assets, such as shares in a company, units in a unit trust
and real property.
Although at this point in time, the Government is unable to
quantify the ongoing revenue impact of this measure, the disposals
of investments by MITs are to be aligned with the taxation
treatment of disposal of similar investments in complying
Currently, the treatment of gains and losses on the disposals of
investments in the MIT may be classified as capital or revenue
income depending upon the characterisation of the investment
activities. With the introduction of the irrevocable election into
the CGT regime, this will provide a more consistent approach in
taxing the disposals of assets for MITs.
The Government is introducing a limited capital gains tax
("CGT") roll-over which is designed to allow the
restructuring of fixed trusts (trusts with the same beneficiaries
and same entitlements with no material discretionary elements)
without any immediate CGT consequence. The roll-over is available
for assets transferred between fixed trusts effective from 1
November 2008 to defer CGT arising from a transfer until the
receiving trust ultimately disposes the asset. Integrity measures
will also be released to accompany these new rules. It is believed
that by providing this limited roll-over, it will enable business
and investment trusts to improve their attractiveness for further
For details, refer to the following Assistant Treasurer's
Based on the recommendations of the Board of Taxation,
substantial changes are proposed to change the Controlled Foreign
Company ("CFC"), Foreign Investment Fund
("FIF"), transferor trust and deemed present entitlement
rules. The CFC provisions will remain the primary set of rules to
counter tax deferral arrangements, but will be rewritten to be
included in the Income Tax Assessment Act 1997. The FIF
and deemed present entitlement rules will be repealed with the FIF
rules to be replaced with targeted anti avoidance provisions.
Amendments will also be made to the transferor trust rules to
improve their integrity.
These changes are expected to reduce compliance costs for
businesses and ensure Australia's competitiveness in the
managed funds market.
The Government has not yet stated when these amendments will
take effect. They will consult on the implementation of these
changes so it would be recommended to keep an eye out for further
updates in the upcoming months.
For discussions in relation to these changes, refer to the
Assistant Treasurer's Media Release:
Employers will now need to reconsider whether they will offer
employee share schemes in their current form as most are unlikely
to remain tax effective. The measures will maintain the incentives
for low and middle-income earners to access such schemes and will
not affect shares or options already held by employees (before 12
Employee share policies should be revaluated to determine
whether they are worthwhile continuing. In all likelihood new
alternative policies will be required to be put in place to
For further details, please refer to the following
Treasurer's Media Release:
The income tax treatment of any property lease incentive will vary, depending on the nature of the inducement provided.
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