Government to clarify tax arrangements for MITs

The government will make amendments to clarify tax arrangements for managed investment trusts (MIT) to strengthen investor access and guidelines to prevent misuse.

In a statement, Minister for Financial Services Stephen Jones outlined that the targeted policy change would reaffirm that genuine, foreign-based, widely-held investors can still access concessional withholding tax rates on eligible distributions to members through MITs.

“The amendments will maintain current industry practice and understanding of the operation of the managed investment trust pooling requirements under Division 275 of the Income Tax Assessment Act 1975 and remove ambiguity around the use of MITs,” Minister Jones said.

“The amendments will make clear that trusts ultimately owned by a single widely-held investor are able to access the MIT concessions.”

This follows a recent tax alert by the ATO issued on Friday, 7 March, which outlined that the ATO would take enforcement where taxpayers engaged in non-commercial restructures to inappropriately access MIT withholding tax benefits.

In the tax alert, the ATO outlined its concerns about arrangements that inappropriately seek to take advantage of the managed investment trust (MIT) withholding regime through the restructure of inward investment structures.

“We are concerned with arrangements that restructure an existing trust or other inward investment structure to inappropriately access the MIT withholding regime (including deemed capital gains tax treatment), including where that restructure is connected with the disposal of trust property assets held by entities controlled by the trust,” the Tax Office said.

Other concerns noted included that Australian entities with passive assets were not meeting the requirements to access the MIT withholding tax regime and that certain risks could be presented.

To tackle potential risks and issues, the ATO said it was reviewing the arrangements and engaging in discussions with taxpayers.

“Taxpayers and advisers who enter into these types of arrangements will be subject to increased scrutiny,” the Tax Office said.

“We are also aware that there are existing MITs that were established for the making of new inbound investments into Australia that are indirectly owned by a single foreign entity covered by subsection 257-20(4) of the ITAA 1997.”

“The potential application of Part IVA of the ITAA 1936 may also be a relevant consideration for these structures. However, we will not apply our compliance resources to these structures if they were established prior to the publication of this alert unless there is material new investment or ownership change.”

Jones said the amendments by the government went alongside other government actions to attract foreign investment by making the process more streamlined and transparent, which were set to fund payments.

The government and ATO urged taxpayers who had entered or were contemplating entering into an arrangement of this type to contact them directly.