Money
Issue No. 47 - June/ july
Trust changes ease compliance load
by Dr David Corkindale and Dr David Corkindale
Recent changes to the Managed Investment Trust withholding rules enacted in the Tax Laws Amendment (Election Commitments No. 1) Act 2008 (Cth) introduce new tax rules affecting MITs - which include family trusts - easing beneficiaries’ compliance burden. This year’s Budget announcements have also provided welcome news for MITs.
Final withholding tax cut
The new MIT rules introduce a final withholding tax on fund payments made by MITs to non-resident beneficiaries. Broadly, a ‘fund payment’ is the Australian sourced net income of the trust apart from interest, dividends, royalties and non-taxable Australian property capital gains and losses.
The new rules aim to encourage foreign investment in Australia’s managed funds. The significant reduction (over three years) in the rate of withholding tax on fund payments is seen as a way to attract foreign investment and is one of several measures to promote Australia as a financial services hub.
Managed Investment Trust
The rules apply to MITs. A trust is a MIT in relation to an income year if it:
• makes a fund payment in relation to the income year;
• has an Australian resident trustee or its central management and control is in Australia at the time of the first fund payment or earlier in the income year;
• is a ‘managed investment scheme’ operated by a
‘financial services licensee’ as defined in the
Corporations Act 2001 at the time of the first fund
payment; and
• meets a test for being widely held at the time of the first payment.
The trust will be widely held if:
• its units are listed for quotation in the official list of an approved Australian stock exchange; or
• it has at least 50 members; or
• it has a specified entity (generally, entities that are themselves widely held, such as superannuation funds) as a member of the trust;
• and no foreign individual has a 10%...
