The Government has released an amended definition of a Managed
Investment Trust (MIT) for public consultation. The amended definition
will apply to both the capital election reforms and the withholding tax
regime.
This follows the media release on 10 February 2010
regarding the Government’s intention to expand the MIT definition for
withholding tax purposes to ensure closer alignment of this definition
with the definition of a MIT for the capital election reforms.
The
new MIT definition will expand the definition currently found in the
withholding tax rules. There will no longer be a MIT definition in the
proposed capital election rules. The move to one MIT definition for
both regimes, rather than two definitions in separate sections of the
legislation, reflects public sentiment for uniformity.
The new
MIT definition is largely the same as the definition contained in the
proposed capital election reforms. However, new requirements have been
introduced to:
- restrict a foreign resident individual’s
ownership of the fund to 10%;
- require the fund to be a managed
investment scheme as defined by the Corporations Act; and
- allow a
listed fund to qualify as an MIT without having to trace through to its
underlying membership.
The Government does not expect the
changes to have a significant impact on which funds meet the definition
of a MIT for the capital election regime.
The key changes
between the new MIT definition and the existing MIT definition for
withholding tax purposes are:
- an expansion of the definition
to include certain wholesale managed investment schemes;
- the
inclusion of certain managed investment schemes that are operated and
managed by entities not required to be financial services licensees;
- the
introduction of a rule to explicitly exclude closely held trusts; and
- the
addition of pooled superannuation trusts with at least one member that
is a complying superannuation fund with at least 50 members to the list
of specified widely held entities.
It is the Government’s
intention that these proposed changes will result in a greater number of
entities being classified as MITs for withholding tax purposes, whose
unit holders may benefit from the availability of lower withholding tax
rates.
However, the Government will still need to clarify, among
other things, what is meant by the requirement for a fund to be both
operated and managed by a financial services licensee. This requirement
may compromise the ability of a fund to qualify as a MIT where its
responsible entity outsources management like activities to related or
third party service providers that do not have a financial services
license. Similarly, the requirement could prevent funds invested in by
foreign collective investment vehicles who are involved in investment
level decisions from qualifying as a MIT.
The amended MIT
definition will not apply unless the proposed capital account reforms
are passed.
The amended definition will have effect in relation
to the withholding tax rules from 1 July after receiving Royal Assent.
The
amended definition will have effect in relation to the capital election
rules from the start of the 2008-09 income year.
Should you required any details, please contact your Moore Stephens relationship partner.
Authors:
Allan Mortel and James Robson, Moore Stephens Sydney