The Government introduced legislation into Parliament earlier this week for the new Managed Investment Trust (MIT) definition that will apply to both the capital account election reforms and the withholding tax regime. The intention of the new definition is to expand the application of the MIT regime to a wider range of managed funds. Unfortunately, it has not fully achieved this objective.
This new MIT definition contains four (4) core requirements and different criteria for registered and unregistered Managed Investment Schemes (MIS).
Most of the requirements contained in the Exposure Draft (ED) legislation remain. As summarised in our Moore Tax News edition entitled 'Managed Investment Trusts – a uniform definition' that was circulated soon after the ED legislation was released, they include:
- Restriction on a foreign resident individual's ownership of the fund to 10%;
- Requirement for the fund to be a MIS as defined in the Corporations Act 2001;
- Expansion of the definition to include certain wholesale MIS, Government controlled and owned entities;
- Inclusion of certain MIS that are operated and managed by entities not required to be financial services licensees;
- Introduction of a rule to explicitly exclude closely held trusts; and
- Addition of pooled superannuation trusts with at least one member that is a complying superannuation fund with at least 50 members to the list of specified widely held entities.
A major change from the ED was the inclusion of a requirement that investment management activities are carried out in Australia. This will be a major impediment for large foreign investors, such as pension funds and sovereign funds, investing in Australia as they would generally participate in investment management decision making.
Some of the additional requirements that have been introduced into the MIT definition as a result of industry consultation include:
- A reduced membership rule threshold for unregistered wholesale MIS;
- A specific 'closely held' test for unregistered wholesale MIS; and
- A special look-through rule for determining the number of members that can be attributed to holdings by superannuation funds and other particular collective investment vehicles to determine whether the wholesale fund is widely held.
Interestingly, whilst the look-though rule has been provided to make it easier for unregistered MISs to satisfy the widely held test the look-through rule has not been provided for registered MISs. This seems an inequitable result as it will be more difficult for registered wholesale funds to qualify as an MIT compared to their unregistered cousins.
For the withholding tax rules, this new definition will have effect from 1 July after receiving Royal Assent.
For the capital account election regime, this new definition will have effect from the start of the 2008-09 income year. The legislation containing this regime is currently awaiting Royal Assent.
Should you require any details, please contact your Moore Stephens Relationship Partner.
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