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Managed Investment Trusts - Exposure Draft released: Capital Account Treatment
- By Moore Stephens
- Published 15/12/2009
- Moore Tax News
- Unrated
The Assistant Treasurer, Senator Nick Sherry, has released for public consultation the Government's draft Managed Investment Trusts “MIT”): capital account treatment legislation; together with its explanatory material.
Tax Laws Amendment (2010 Measures No. 1) Bill 2010 propose changes to allow Australian MITs to elect to apply capital gains tax “CGT”) treatment to gains and losses on disposal of certain investments (as announced in the 2009/2010 Budget). Currently, the treatment of gains and losses on disposal of investment assets may be on revenue or capital account depending on the individual facts and circumstances. Therefore, this legislation provides certainty as to the appropriate taxation treatment on disposal of eligible investments by MITs and whether the respective gains or losses should be treated on capital or revenue account.
Broadly, the changes will allow eligible MITs that are not taxed as companies to irrevocably elect to apply the CGT provisions as the primary code to gains and losses on disposal of certain eligible assets (primarily shares, units and real property) with effect from the 2008/2009 income year. It follows that Australian resident investors investing in such MITs would therefore be entitled to the CGT discount on eligible taxable gains distributed by the MIT. Similarly, non-resident investors would be exempt from Australian tax on distributions of gains on eligible MIT assets unless the assets are ‘taxable Australian property’.
If an eligible MIT does not elect for the capital account treatment, then the gains and losses on disposal of eligible assets (excluding land, an interest in land, or an option to acquire or dispose of such an asset) will be treated on revenue account. However, we note that land is not subject to this deemed revenue account treatment and whether or not it is on capital or revenue account will be based on an application of the general principles of tax law.
The changes will also:
Should you require any details, please contact Colleen Dillon on (03) 9614 4444.
Author: Colleen Dillon, Moore Stephens Melbourne
Tax Laws Amendment (2010 Measures No. 1) Bill 2010 propose changes to allow Australian MITs to elect to apply capital gains tax “CGT”) treatment to gains and losses on disposal of certain investments (as announced in the 2009/2010 Budget). Currently, the treatment of gains and losses on disposal of investment assets may be on revenue or capital account depending on the individual facts and circumstances. Therefore, this legislation provides certainty as to the appropriate taxation treatment on disposal of eligible investments by MITs and whether the respective gains or losses should be treated on capital or revenue account.
Broadly, the changes will allow eligible MITs that are not taxed as companies to irrevocably elect to apply the CGT provisions as the primary code to gains and losses on disposal of certain eligible assets (primarily shares, units and real property) with effect from the 2008/2009 income year. It follows that Australian resident investors investing in such MITs would therefore be entitled to the CGT discount on eligible taxable gains distributed by the MIT. Similarly, non-resident investors would be exempt from Australian tax on distributions of gains on eligible MIT assets unless the assets are ‘taxable Australian property’.
If an eligible MIT does not elect for the capital account treatment, then the gains and losses on disposal of eligible assets (excluding land, an interest in land, or an option to acquire or dispose of such an asset) will be treated on revenue account. However, we note that land is not subject to this deemed revenue account treatment and whether or not it is on capital or revenue account will be based on an application of the general principles of tax law.
The changes will also:
- clarify that distributions or gains on 'carried interest' units in a MIT are treated on revenue account; and
- prevent the Commissioner from making amendments where an eligible MIT elects CGT treatment that applies in the 2008/2009 income year, in respect of income years prior to the 2008/2009 income year if such disposals would have been covered by this measure had it applied in the income year.
Should you require any details, please contact Colleen Dillon on (03) 9614 4444.
Author: Colleen Dillon, Moore Stephens Melbourne