Debt-like trust instruments – AMITs
A debt-like trust instrument in an attribution MIT (AMIT) is treated as a debt interest
A holder of debt-like trust instrument is treated as not being a member of the AMIT, and distributions relating to the instrument are generally treated as 'interest'.
What is a debt-like trust instrument?
An instrument is a debt-like trust instrument if it has all of the following features:
- any distribution relating to the interest is fixed at the time the interest was created, by reference to the amount of the interest
- any distribution relating to the interest is made solely at the discretion of the trustee
- the interest would rank above all other membership interests (apart from other debt-like trust interests) in the event that the trust ceases to exist, or is under administration or being wound up
- if the trustee does not make a distribution relating to the interest within a particular period, then the constituent documents of the trust prohibit
- distributions relating to any other membership interest in that period
- distributions relating to a membership interest in another entity that are stapled together with the membership interest in the AMIT, in that period.
Why is a debt-like trust instrument treated as a debt interest in the AMIT?
The objective of treating a debt-like trust instrument as a debt interest in the AMIT is to ensure that:
- the holders of debt-like instruments will not be treated as members of the trust, for the purposes of working out whether the trust qualifies as a MIT or an AMIT– the instrument is not included in the widely held and closely held tests, or the clearly defined interests tests
- the attribution rules do not apply to the holders of debt-like trust instruments, including the unders and overs regime
- debt-like instruments are treated as debt for the purposes of applying other provisions in the income tax law (such as the thin capitalisation provisions)
- a distribution in relation to the instrument is treated as interest for the purposes of the interest withholding tax provisions
- a distribution in relation to the instrument is treated as interest, so that it may also be treated as a deduction in working out the trust components of an AMIT.