Review of the tax arrangements applying to managed investment trusts

The Board has completed its review of the taxation arrangements applying to managed investment trusts and provided its report to the Assistant Treasurer. In preparing its report the Board took into account the various submissions to the review, discussions with stakeholders and the consultants’ evaluations. In line with past practice, the Board’s report is expected to be available at the time the Government releases its response to the report.

Background

On 22 February 2008 the then Assistant Treasurer announced that he had asked the Board of Taxation to undertake a review of the tax arrangements applying to managed funds that operate as managed investment trusts.

The broad policy framework for the taxation of trusts is to tax the beneficiary on their share of the net income of the trust, so that the trustee is only taxed on income that is not taxable in the hands of the beneficiaries. Within this framework, the Board should ideally develop options for reform with taxation outcomes that are broadly consistent with five key policy principles:

• the tax treatment for trust beneficiaries who derive income from the trust should largely replicate the tax treatment for taxpayers as if they had derived the income directly;
• in recognition of the tax advantages available to trusts that are not available to companies deriving business income, flow through taxation of income from widely held trusts, such as managed investment trusts, should be limited to trusts undertaking activity that is primarily passive investment;
• beneficiaries should be assessable on their share of the net income of a trust whether it is paid or applied for their benefit, or they have a present right to call for immediate payment;
• the trustee should be liable to tax on the net income of the trust that is not assessable to beneficiaries in a particular income year; and
• trust losses should generally be trapped in the trust subject to limited special rules for their utilisation.

The objective of the review was to provide advice on options for introducing a specific tax regime for managed investment trusts which would reduce complexity, increase certainty and minimise compliance costs.

The Board appointed a working group of its members comprising John Emerson AM (Chairman), Keith James, Chris Jordan AO and Dick Warburton AO to oversee the Board's review of the tax arrangements applying to managed investment trusts.

On 29 October 2008, the Board of Taxation released its discussion paper on the Review of the tax arrangements applying to managed investment trusts. A copy of the discussion paper is available for download.

The Chairman of the Board of Taxation announced the release of the discussion paper via a press release.

The Board developed this discussion paper to facilitate stakeholder consultation. In developing the discussion paper the Board has conducted targeted consultations with key stakeholders.

The Board requested written submissions on the Review of the tax arrangements applying to managed investment trusts by 19 December 2008. All submissions received were acknowledged. Copies of public submissions made to the Board are available from the Managed Investment Trusts submissions page.

To assist in the Review process, the Board conducted consultation meetings in November 2008. Consultation meetings were held on 12 November 2008 in Melbourne and 13 November 2008 in Sydney. The consultation meetings were attended by representatives from taxation professional bodies, major law and accounting firms, various major corporations and business associations. A copy of the consultation presentation is available for download.

On 12 May 2009, the Assistant Treasurer announced that the Government would implement the Board of Taxation's interim advice on the taxation of managed funds to provide deemed capital account treatment for gains and losses made on disposal of investment assets by managed investment trusts (MITs), subject to appropriate integrity rules.

This will provide greater certainty for MITs on the tax treatment of the disposal of assets. It will apply where an Australian MIT makes an irrevocable election to apply the capital gains tax (CGT) regime to disposals of eligible assets. Resident investors will be entitled to the CGT discount on eligible taxable gains distributed by MITs and non‑resident investors will be exempt from Australian tax on distributions of gains on disposal of eligible MIT assets unless the assets are taxable Australian property.

Printed versions of the discussion paper are available by email request sent to taxboard@treasury.gov.au, or by phoning the Board of Taxation Secretariat on (02) 6263 4366.

Further information on this review can be obtained from Jorge del Busto (02 6263 4365) at the Board of Taxation Secretariat.