• 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.
      Last modified: 06 Oct 2016QC 47436