Senate Committee Recommendation
On 10 March 2016, the Senate Economics Legislation Committee (Committee) published its report which recommended that the Senate pass the proposed tax regime for managed investment trusts under the Tax Laws Amendment (New Tax System for Managed Investment Trusts) Bill 2015 (AMIT Bill).
The Committee believes “that the new tax system for AMITs is long overdue and will modernise the tax treatment of managed investment trusts. These reforms will make Australia more competitive in the funds management industry and allow Australian funds to participate in the Asia Region Funds Passport.”
Areas of concern raised by stakeholders
Overall submissions received by the Committee from stakeholders indicated strong support for the introduction of the AMIT Bill despite a few areas of concerns raised on the effect of the AMIT Bill on the implementation and feasibility of the proposed commencement date of 1 July 2016.
Withholding tax liability
Concerns were raised that non-resident withholding tax liability determined on an attribution basis may expose custodians to further potential withholding tax obligations, especially if there is insufficient or no cash distributed to cover such liability.
Despite the concerns, other stakeholders have commented that such a situation is unlikely to occur and the AMIT Bill provides custodians with a right of indemnity against the non-resident investor to recover any amounts paid. In addition, custodians can also amend their custody agreements to minimise any risk not covered by the indemnity.
Tax treatment of custodians holding units in AMITs
Concerns were raised that specific ‘look-through’ provisions for units in AMITs held by custodians would create confusion for the tax treatment of custodians in other areas.
Despite the concerns, other stakeholders have commented that these provisions are for the benefit of custodians interposed between an AMIT and an investor, and ensure that the character of amounts attributed by an AMIT can flow through to its client.
Cost base adjustments for AMIT units
Concerns were raised that upward costs base adjustment on units where the cash distribution is less than the taxable components attributed to a member may have unintended consequences.
Despite the concerns, other stakeholders have commented that these provisions are for the benefit of investors and reduce the scope of double taxation, however the provisions will be closely monitored during these implementation phase to resolve issues as they arise.
Commencement Date
The Committee acknowledges that “significant investment will be required to administer the new tax system, the committee believes that it is in the best interests of the sector not to delay any further and to retain the commencement date of 1 July 2016.”
In addition to the Committee recommending the Senate pass the AMIT Bill, it also recommended that a formal post-implementation review be undertaken by Treasury of the legislation and operation of the AMITs tax system within 24 months of commencement of the legislation (ie completed by 1 July 2018).
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