- New Attribution Managed Investment Trust Regime
On 3 December 2015 the government introduced the Tax Laws Amendment (New Tax System for Managed Investment Trusts) Bill 2015 together with three supporting Bills, to implement a new tax regime for attribution managed investment trusts (AMITs) and to make several amendments to the existing tax rules governing trusts.
It is expected the Bills will be passed by Parliament in the Autumn 2016 sitting.
Fund managers will need to thoroughly consider the implications of the AMIT regime and the other amendments. Managed Investment Trusts (MIT) should generally welcome the new AMIT regime as it provides greater certainty and consistency. Decisions will need to be made now about the 2016 Financial Year.
Fund managers will need to determine whether they elect into the AMIT regime and if they do, whether their documentation, processes and templates are ready for the year end. More specifically matters to which consideration may be given include:
- whether a trust will cease to be a corporate unit trust or a public trading trust and if so whether it will become a MIT
- whether a trust will become a MIT due to the expansion of the definition of MIT
- whether a trust will derive any non-arm’s length income
- whether the members of a MIT have clearly defined rights and whether it is eligible to be a AMIT
- if a MIT is eligible to be an AMIT, whether it should become one and if so from what date (should early adoption be considered)
- if a MIT has multiple classes of members, whether each class should be treated as separate AMIT
- whether a trust deed will need to be amended to facilitate to the attribution model, and if so whether this will have income tax and stamp duty consequences (i.e. will amendments to the trust deed constitute a resettlement)
- whether the product disclosure statements and marketing materials need to be updated
- what changes are required to the accounting and tax management systems to apply the AMIT regime (e.g. determining components, preparation of AMMA statements and withholding obligations)
The AMIT regime trusts which qualify as AMITs (refer 1.1) will be able to elect to apply the new AMIT regime from 1 July 2015. Trusts which are not subject to the new AMIT regime will continue to be taxed in accordance with the existing tax rules governing trusts.
Key features of the AMIT regime:
- an attribution model will apply instead of the general trust provisions in Division 6 of Part III of the Income Tax Assessment Act 1936 (refer 1.3)
- rules for dealing with variances in the amounts attributed to members of an AMIT trust (such variances are referred to as ‘overs’ and ‘unders’) (refer 1.4)
- the cost base of membership interests may be increased or decreased, broadly, where the taxable distribution is respectively more or less than the cash distribution; (refer 1.5)
- tax-free and tax-deferred distributions will be non-assessable (refer 1.6)
- AMITs with multiple classes of membership interests can make an irrevocable choice to treat each class as a separate AMIT for the purposes of the AMIT regime (refer 1.7)
- debt-like trust instruments issued by an AMIT will be treated as debt interests rather than as membership interests for the purposes of determining whether a managed investment trust qualifies as an AMIT and applying the attribution model (refer 1.8)
- AMITs will be deemed to be fixed trusts for the purposes of the income tax law (refer 1.9)
- AMITs will be deemed to be widely held unit trusts (refer 1.10)
- the dividend, interest and royalty withholding tax provisions and the MIT withholding tax provisions will be amended so they operate with the attribution model (refer 1.11)
- the trustee of a MIT will be taxed at 30 per cent on amounts determined by the Commissioner to be ‘non-arm’s length income’ less any deductions attributable only to that income
Other changes Repeal Division 6B
- Division 6B, which taxes ‘corporate unit trusts’ similarly to companies, will be repealed with effect from 1 July 2016
- Transitional rules will allow trusts which cease to be subject to Division 6B to make franked distributions to unitholders until 30 June 2018
Removal of the 20 per cent tracing rule in Division 6C
- From 1 July 2016, a trust will no longer be a public unit trust for the purposes of Division 6C as 20 per cent or more of its membership interests are held by tax exempt entities and complying superannuation entities which are entitled to a refund of franking credits