For the 2016 and later income years, an eligible MIT may choose to apply the attribution rules in Division 276 of the Income Tax Assessment Act 1997 (ITAA 1997). Where that choice is made, the MIT becomes known as an attribution MIT (AMIT).
A trust is eligible to apply the new tax system for AMITs for an income year if all of the following are satisfied:
- the trust is a MIT in relation to the income year
- the members of the trust have clearly defined rights to income and capital of the trust at all times when the trust is in existence during the income year
- the trustee makes an irrevocable choice to apply the new system.
Clearly defined interests
Eligibility to be an AMIT requires that the rights of all members to income and capital arising from the membership interests in the trust are 'clearly defined'. Membership interests in a MIT will be clearly defined if either:
- the trust is registered under section 601EB of the Corporations Act 2001 (this covers the registration of a managed investment scheme)
- the rights to income and capital arising from each membership interest in the trust are the same.
In a multi-class trust, varying fee structures or charges imposed on the members across classes, issue and redemption prices, and exposure of membership interests to foreign currency are disregarded when determining whether the rights to income and capital arising from the membership interests are the same.
When working out if members have clearly defined rights, consider whether:
- the trust constituent documents provide an objective benchmark for the trustee to attribute amounts to members annually
- the amount of each member component can be worked out on a fair and reasonable basis according to the constituent documents of the trust
- the rights of each member can be materially diminished or expanded through the exercise of a power or right
- the trustee is obliged to treat members in each class equally, and members in different classes fairly
- the trustee can change the constituent documents to modify members' rights.
For more information see also Law Companion Ruling LCR 2015/4 Attribution Managed Investment Trusts: 'clearly defined rights'.
Choice by trustee
The trustee must choose for the trust to become an AMIT. The trustee indicates their choice in the way they prepare the trust's tax return. Lodging an AMIT income tax return is sufficient evidence that the choice to become an AMIT has been made.
Once a trustee makes the choice for the MIT to become an AMIT, the choice cannot be revoked. This means the MIT will remain an AMIT for as long as it remains eligible.
If the trustee does not choose for the MIT to become an AMIT, the existing laws for the taxation of trusts (Division 6 of the Income Tax Assessment Act 1936: ITAA 1936) will continue to apply.
Under the new system, an AMIT will be treated as a fixed trust for income tax purposes. A member of the AMIT is treated as having a vested and indefeasible interest in a share of the income and capital of the AMIT throughout the income year.
Once a trustee makes a choice for the trust to become an AMIT, it cannot be revoked. However, the trust can cease to be an AMIT if it no longer meets the eligibility requirements.
In that case, the trust will need to continue to work out unders and overs relating to a base year during which the trust was an AMIT and take those into account in calculating its net income for the later discovery year.
Care will need to be taken with unders and overs relating to tax offset characters, as penalties can apply.