- Home
- Moore Tax News
- The impact of the 2009/10 Federal Budget for the funds management industry
The impact of the 2009/10 Federal Budget for the funds management industry
- By Allan Mortel
- Published 15/05/2009
- Moore Tax News
- Unrated
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 Budget:
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 legislation.
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 superannuation funds.
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.
For further detail, please click here to view the 2009-10 Federal Budget
1.2 CGT Limited Roll-Over for Fixed Trusts
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 investment.
For details, please click to view the Assistant Treasurer’s Media Release
1.3 Foreign Source Income Attribution Regimes
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, please click here to view the Assistant Treasurer’s Media Release
2. Reconsidering employee share schemes
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 May 7:30pm).
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 incentivise employees.
For further details, please click here to view the Treasurer’s Media Release
For more information please email Allan Mortel at amortel@moorestephens.com.au.
In light of the Rudd Government’s efforts to boost the economy, we welcome some of the announcements made in the Federal Budget:
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 legislation.
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 superannuation funds.
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.
For further detail, please click here to view the 2009-10 Federal Budget
1.2 CGT Limited Roll-Over for Fixed Trusts
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 investment.
For details, please click to view the Assistant Treasurer’s Media Release
1.3 Foreign Source Income Attribution Regimes
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, please click here to view the Assistant Treasurer’s Media Release
2. Reconsidering employee share schemes
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 May 7:30pm).
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 incentivise employees.
For further details, please click here to view the Treasurer’s Media Release
For more information please email Allan Mortel at amortel@moorestephens.com.au.
Spread The Word
