Technical Amendments to the Attribution Managed Investment Trust Regime

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Treasury has invited submissions on the draft AMIT Technical Amendments Bill (draft Bill) and explanatory materials (explanatory materials) to assist them in their objective to ensure that the new tax system for MITs operates as intended. These amendments were foreshadowed almost a year ago (19 July 2017) by the Hon Kelly O’Dwyer MP, Minister for Revenue and Financial Services who stated that “The attribution tax regime was designed to give greater certainty to investors in managed funds, reduce compliance costs for the funds and enhance overall the competitiveness of Australia’s funds management industry”.

While such lofty ideals are admirable, the devil, as they say, is in the detail, with the Bill released this week (18 June 2018) not disappointing taxpayers in this context.  As to whether the “…the amendments will clarify the law, providing industry with increased investment certainty” as Minister O’Dwyer also asserted, remains to be seen.

While the amendments are a step in the right direction in terms of enhancing the practical operation of the regime, there is still some work to do to iron out remaining issues impacting taxpayers.

What’s changed?

CGT amendments head up the key changes as follows:

  • AMITs and MITs CGT position has been aligned, such that capital gains and losses will not be excluded when calculating a “fund payment” (i.e., the amount on which withholding tax is imposed), thus rectifying the situation where fund payment income was created in circumstances where the trust had zero income.
  • MIT’s that are not AMITs are now unable to distribute ‘item 7’ CGT concession amounts (see Treasury website). This aligns with recent ATO interpretation that capital gains sheltered by capital losses are rarely available under current law.
  • MITs with a single unitholder can satisfy the AMIT eligibility requirements if the only member is a specified widely-held entity. This potentially significantly broadens the scope of the AMIT regime by allowing captive trusts of complying superannuation funds to access the AMIT regime from the end of this 2018 financial year.
  • Former public trading trusts or corporate unit trusts are now able to distribute franking credits until 30 June 2018 (provided the distribution is paid out of income derived before 1 July 2016).
  • MITs with substituted accounting periods (SAPs), involving ‘early balancing’, will be able to elect into the AMIT regime for the 2016/17 income year (i.e., enter into the AMIT regime early), regardless of whether the SAP commenced before 1 July 2016.
  • Former public trading trusts and corporate unit trusts are able to continue distributing franking credits until 30 June 2018, provided that the distribution is paid out of income acquired before 1 July 2016.
  • Entities that are wholly owned by ‘qualifying investors’ and are not part of foreign Collective Investment Vehicles, can now be AMITs, which redresses the current situation where such entities could be MITs but not AMITs.

While the above amendments are designed to address outstanding practical issues, there are still some matters that will hopefully be picked up and remedied in the consultation process.

Such matters include the lack of any substantive change to undistributed CGT concession amounts of an MIT, which becomes an AMIT. Such amounts can currently be distributed to unitholders without a cost base adjustment if the MIT stays outside the AMIT regime, but if within it, and an amount is distributed, a cost base adjustment is required. The practical end result is that some MITs will be forced to stay outside the AMIT regime to preserve this benefit. We feel this is an unintended consequence that will need to be re-visited and re-worked.

There is also a related issue where the unitholders cost base determined by the net income attributed to the unitholder, is increased, but also decreased by distributions to that unitholder, where relevant adjustments are often attributed to different years of income.

Finally, the need for a reconciliation of the AMIT regime with broader ATO CGT provisions, including an explanation of how existing CGT concessions applying to a trust (CGT event 4), align with CGT event 10, which sets out a different (but commercially equivalent) CGT event, is required, given the level of uncertainty created as to whether the concessions are available to an AMIT.

We remain confident Treasury will continue to be receptive to public submissions arising from the consultation which ends on 18 July 2018.

One Investment Group will continue to engage with government and industry bodies, to ensure the best outcome for our client’s and the managed funds industry more broadly.