Managed Investment Trusts – March 2013 Update

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The Federal government is continuing it’s commitment to Australia becoming a regional financial services hub with the on-going development of the Managed Investment Trust regime, a concessional withholding tax regime aimed at foreign investment.

Australian managed investment trusts (MITs) are eligible for the following important tax concessions:

  • Concessional withholding tax rates for ‘fund payments’ made to foreign investors:
    • A 15% withholding tax rate for investors who are resident in a country that has an exchange of information agreement with Australia (approximately sixty countries currently have an exchange of information with Australia, including the UK, US, Canada, Singapore and Japan);
    • A 10% withholding tax rate for foreign investors in Australian MITs investing in energy efficient buildings constructed after 1 July 2012;
    • A 30% withholding tax rate applies in other cases.
  • Capital Account Treatment for the taxation of gains and losses on the disposal of eligible assets (namely a share in a company, non-share equity, a unit in a unit trust, land) where the MIT makes an irrevocable election for CGT default treatment.
  • In February 2013, the Government also announced its intention to amend tax laws to enable foreign pension funds and sovereign wealth funds to access the MIT regime (retrospectively from 1 July 2008).

It is noted that where the MIT regime is not available, (e.g. the trust is ineligible for MIT status) non-resident investors will be taxed on their Australian sourced trust distributions at marginal rates upon lodgement of their Australian tax return.

In order to qualify as an MIT, there are a number of conditions that must be satisfied:

  • The trust must be an Australian resident trust
  • The trust must not be a trading trust
  • The investment management activities in relation to the trust should be carried out largely in Australia in respect of Australian assets
  • The trust must be a managed investment scheme under the Corporations Act 2001 (Cth)
  • The trust must be widely held
  • The trust must not be closely held (e.g. 75% of the interests are held by fewer than 20 persons)
  • The trust must be operated or managed by a financial services licensee or authorised representative

The presence of MITs in Australia has been growing rapidly over the past years, offering a broad range of investment opportunities for foreign investment into Australia.

One Investment Group can assist in the structuring and on-going management of MITs and other Australian investment vehicles. Contact One Investment Group to discuss whether a Managed Investment Trust is a suitable structure for an Australian investment you are considering.

Please note that as this area of Australian tax law continues to change, this information is intended as a guide only and you are advised to seek professional advice in relation to your specific facts and circumstances.