Managed Investment Trusts – The Appeal for Investors

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For investors wishing to invest in Australia there are a number of products and structures available on the domestic and international market.  It is up to each investor to determine which structure, investment class and horizon is the most effective for them taking into account the commercial and taxation implications and their personal investment objectives.

In recent years, the popularity of managed investment trusts (MIT) in Australia has increased steadily, supported by on-going tax reforms and growing investor knowledge of the benefits of an MIT structure.

The MIT structure provides both flexibility and simplicity for investors, allowing returns to be distributed tax effectively through the trust structure.  It is the MIT structure that allows the tax liability to be ultimately borne by the investor (either directly or via the withholding tax regime for foreign investors).  What this means is that an MIT investment can be achieved with minimal tax leakage or risk of double taxation for investors.

An MIT structure is particularly beneficial for investments in capital assets.  This is because eligible MITs are able to elect to treat certain assets on ‘capital account’ (as opposed to ‘revenue account’ holdings) thus allowing eligible investors to access the general CGT discount (being a 50% reduction for individuals and 33.33% for superannuation funds).  This means a substantially reduced tax liability for eligible investors on capital gains distributed through the MIT from the disposal of assets that have been held for more than 12 months.

Furthermore, foreign investors have the added benefit of being exempt from certain Australian capital gains distributed through an MIT (other than gains from real property and permanent establishment business assets).  This allows an MIT to distribute such gains to foreign investors free of Australian taxation.

Foreign investors also benefit under the concessional MIT withholding tax rate set at a flat rate of 15% (or 10% for eligible clean building MITs), rather than the default withholding tax rates of up to 30%.

These tax benefits apply not only to distributions received by investors but also in the circumstances where the investor wishes to dispose of their unitholdings or MIT interest.  That is, where the investor holds the interest on capital account, any capital gain realised at disposal may be eligible for the general CGT discount or otherwise be exempt from Australian capital gains tax for foreign investors.

As investor become more familiar with the MIT investment structure, the tax advantages and concessions will help to encourage and promote Australia as a regional financial services centre for domestic and foreign investors at both private and institutional levels.

If you have any questions about how to invest in an MIT or need further information about MIT investments offered/managed by One Investment Group, please contact us.

Please note that this information is intended as a guide only and should not be relied upon as professional advice. You should always seek specific advice in relation to your specific facts and circumstances.