New taxation system for managed investment trusts

On 7 May 2010, the government announced a new tax system for managed investment trusts (MITs) that will reduce complexity, increase certainty and minimise compliance costs.

The new tax system will largely be based on recommendations arising from the Board of Taxation review of the taxation arrangements applying to MITs.

On 18 October 2010 the government released a discussion paper. Key aspects outlined in the discussion paper included:

• a MIT will be able to carry forward to a later income year 'under' and 'over' amounts of net income up to a 5% cap
• MIT unit holders will be able to make, in certain circumstances, upward cost base adjustments to the cost base of their unit holdings to reduce the extent to which double taxation might otherwise arise
• MIT distributions will generally retain their character in the hands of unit holders, except those who hold the units on revenue account (for example, banks and insurance companies).

In addition, MITs in which unit holders have clearly defined rights/entitlements will be:

• able to choose to use an attribution method of taxation, under which the trustee can allocate tax income among beneficiaries on a fair and reasonable basis
• treated as fixed trusts for various taxation law purposes, such as the trust loss rules.

On 30 July 2012, the government announced the start date of the new MIT laws would be 1 July 2014 to coincide with the general update and rewrite of the trust provisions. In addition it was announced that the choice that MITs can make to apply the streaming changes enacted in June 2011 will be extended so that MITs can apply them to the 2012-13 and the 2013-14 income years.

Media release

For more information refer to:

• media release no. 080/2012 issued 30 July 2012 by the Assistant Treasurer
• media release no. 148/2011 issued 29 November 2011 by the Treasurer
• media release no. 050/2011 issued 8 April 2011 by the Assistant Treasurer
• media release no. 086/2010 issued 7 May 2010 by the Assistant Treasurer.

More information

For more information refer to:

• choice for MITs to apply the trust streaming provisions - refer to Interim changes to the taxation of trusts
• Mid Year Economic and Fiscal Outlook 2011-12 - Papers available at the 2011-12 Budget Papers website
• Discussion paper Managed Investment Trusts, issued 18 October 2010
• Board of Taxation recommendations - Review of the tax arrangements applying to managed investment trusts, issued in October 2008.