Managed investment trusts: election into capital treatment

What happens when the eligibility of the trust changes?

The capital treatment election rules will not apply to disposals of eligible assets in any year in which the eligibility requirements are not met.

Disposals of eligible assets in years when the eligibility requirements are not met, are subject to general tax law principles.

If the trust meets the eligibility requirements again in a later income year, the capital treatment election will remain in force as the election once made, is irrevocable.

Example

Bayley Trust is an eligible MIT for the purposes of the capital treatment election, and has made an election into capital treatment, which is in force for the 2008-09 and later income years.

In the 2010-11 income year, Bayley Trust fails to meet the requirements to be an eligible MIT and as such the capital treatment election does not apply in that year. Bayley Trust disposes of units in a unit trust during that year. As the trust was not a MIT for the 2010-11 income year, the capital treatment election does not apply in the year. Consequently the character of the gain from the disposal of the units will be determined in accordance with general tax law principles.