Senate

Explanatory Memorandum

(Circulated by the authority of the Treasurer, the Hon Wayne Swan MP)

Chapter 1 - Amendments 1 to 7 to Schedule 3 - Managed investment trusts: capital treatment and taxation of carried interests

Explanation of amendments

Amendment 1

1.1 Amendment 1 removes sections 275-5 and 275-10 of item 4 in Schedule 3 to the Tax Laws Amendment (2010 Measures No. 1) Bill 2010. These provisions would have treated certain widely held trusts (including certain wholesale trusts and certain Government-owned entities) in the same way as a managed investment trust (MIT).

1.2 Broadly, as a consequence of Amendment 1, an Australian resident trust will be a MIT if it meets the general definition of 'managed investment trust' in Subdivision 12-H of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953) or will be treated in the same way as a MIT if every member of the trust is a MIT.

1.3 Trusts that would have been treated in the same way as a MIT under the removed provisions will now be covered by proposed changes to the general definition of 'managed investment trust' in Subdivision 12-H of Schedule 1 to the TAA 1953, to be introduced into Parliament at a later date.

Amendment 4

1.4 Amendment 4 removes section 275-25 of item 4 in Schedule 3 to the Tax Laws Amendment (2010 Measures No. 1) Bill 2010. Under proposed section 275-25, a trust would not have been treated in the same way as a MIT in relation to an income year, if it was a closely held trust at any time during the income year.

1.5 As a consequence of Amendment 1 a 'closely held' test in relation to trusts that are treated in the same way as a MIT is no longer required. Such a test is to be incorporated with the proposed changes to the general definition of 'managed investment trust' in Subdivision 12-H of Schedule 1 to the TAA 1953, to be introduced into Parliament at a later date.

Amendments 2, 3, 5, 6 and 7

1.6 These amendments make minor technical corrections to Schedule 3.

1.7 Amendments 2 and 3 replace paragraphs 275-15(1)(b) and 275-20(b) and (c) in item 4 of Schedule 3. As a consequence of these amendments the provisions will refer to a trust being 'treated in the same way as a MIT' through the operation of Subdivision 275-A of the Income Tax Assessment Act 1997 .

1.8 Amendments 5 and 7 replace references to 'year of income' with 'income year' in paragraphs 275-110(1)(a) and (b) in item 4 of Schedule 3.

1.9 Amendment 6 inserts 'of Part III' after 'Division 6C' in paragraph 275-110(1)(b) in item 4 of Schedule 3.