WHO SHOULD READ THIS

  • Responsible entities of registered schemes, and trustees of wholesale schemes, whose schemes are passive investment vehicles and may be eligible for the new AMIT regime

THINGS YOU NEED TO KNOW

  • The new AMIT regime provides various benefits to a scheme and its investors, including the ability to stream or attribute income and capital gains to particular classes of units, confirmation the scheme is a fixed trust and an ‘unders and overs’ regime to allow errors in calculating taxable income to be rectified in the year they are discovered. It also allows investors to increase their CGT cost base in units where the taxable component is greater than the distribution.

WHAT YOU NEED TO DO

  • If you are a responsible entity or trustee whose scheme meets the requirements for a Managed Investment Trust and you wish to take advantage of the AMIT regime you will need to review, and likely amend, your scheme constitution. ASIC has granted relief to facilitate responsible entities amending a registered scheme constitution without a members’ meeting.

The long wait for the new regime for Attribution Managed Investment Trusts (AMIT) is over. The Tax Laws Amendment (New Tax System for Managed Investment Trusts) Act 2016 (Cth) became law in May 2016. However, many responsible entities and wholesale scheme trustees will need to amend their scheme constitution to take advantage of the new regime. Importantly, Australian Securities and Investments Commission (ASIC) has granted relief to allow responsible entities to amend their scheme constitutions without a members’ meeting.

This note summarises the key features of the AMIT regime, the requirements which a scheme must meet to participate in the AMIT regime and the steps a responsible entity or trustee should follow to take advantage of the AMIT regime.

Background

The former tax law did not always facilitate the commercial needs of the managed fund industry. After many years of consultation the tax law now provides for responsible entities and trustees of schemes which are MITs to elect for the AMIT regime to apply to the scheme. The key benefits of the AMIT regime for responsible entities and trustees, and investors in their schemes, are:

  • the ability to stream a wide range of tax attributes to different investors (e.g. different kinds of capital gains, income subject to withholding tax, foreign source income, exempt income and income entitled to tax offsets) (Income Attribution)
  • the ability to elect to treat income and assets attributable to a class of units (e.g. a sub fund) as a separate AMIT and for Income Attribution to apply to each separate class of units
  • an ‘unders and overs’ system to allow errors in calculating taxable income to be rectified by making adjustments in the year the errors are discovered (rather than having to amend the scheme’s tax return, and tax statements, as is currently the case)
  • cost base adjustment rules to increase or decrease the cost base of units for capital gains tax purposes where amounts are attributed, but not distributed, to investors which can reduce double taxation – previously only cost base reductions were allowed for ‘tax deferred distributions, and
  • the scheme is deemed to be a ‘fixed trust’, which assists in allowing tax losses to be carried forward and for franking credits to be distributed to investors.

Various registered and wholesale scheme constitutions already incorporate some of these features, such as the allocation of income and capital gains generated from specific assets to particular classes of units and characterising the scheme as a ‘fixed trust’, in anticipation of the introduction of the AMIT regime. However, as the eagerly anticipated and long-awaited AMIT regime has commenced, all responsible entities and trustees that wish to fall under the regime should ensure their scheme constitutions meet the AMIT requirements.

MITs

To qualify as an AMIT, a scheme must be a Managed Investment Trust (MIT), as defined in the Income Tax Assessment Act 1936. A scheme qualifies as an MIT if all of the following apply for the income year:

  • the responsible entity or trustee is an Australian resident, or the central management and control of the scheme is in Australia
  • the scheme does not carry on an active trading business
  • the scheme is a managed investment scheme (as defined in the Corporations Act 2001 (Cth))
  • the scheme meets the widely held requirement (which can require that the scheme has at least 25 or 50 memebers depending on its status)1
  • the scheme meets the not closely held restriction (generally that either the top 10 or 20 investors have less than 75% in interests and no foreign individual holds a 10% or greater interest), and
  • the scheme is operated or managed by an Australian Financial Services (AFS) licensee or an authorised representative of an AFS licensee.

AMITs

For schemes which qualify as MITs, to take advantage of the AMIT regime the responsible entity or trustee must elect for the scheme to be treated as an AMIT (lodging an AMIT income tax return is sufficient evidence that the choice to become an AMIT has been made). Further, the interests of all investors in the scheme must be clearly defined at all times when the trust is in existence in the income year.

Attribution

The tax consequences for investors in an AMIT will turn on what the responsible entity or trustee decides and in the documents that the responsible entity or trustee prepares for investors. The new regime therefore sets out rules about decision-making and record-keeping which the responsible entity or trustee must undertake.

The basic steps are as follows:

  • determine each amount having a particular income or tax offset character for the scheme
  • attribute amounts with particular characters to investors on a fair and reasonable basis in accordance with the constituent documents of the scheme, and
  • report to investors with AMIT Member Annual Statements.

Funds impacted

Any ‘passive’ managed investment scheme which satisfies the MIT requirements listed above is eligible to apply the AMIT regime and we have highlighted below various types of schemes and key reasons why the AMIT regime may be beneficial for the scheme and its invetsors.

Click here to view table.

What action should a responsible entity or trustee take?

A responsible entity or trustee of a scheme which meets the MIT requirements and wishes to take advantage of the AMIT regime should review its constitution to ascertain whether the interests of all investors in the trust are clearly defined and, if required, amend the scheme constitution to satisfy this requirement. The responsible entity or trustee will then need to elect for the scheme to be treated as an AMIT.

For unregistered managed investment schemes, the constitution should be amended (if required) in accordance with the provisions of the constitution.

For registered managed investment schemes, ASIC has granted conditional relief to enable a responsible entity to amend the constitution without convening a members’ meeting. The conditions applying to the relief include that the responsible entity must:

  • consider that the modification is necessary to allow the scheme to operate as an AMIT
  • publish a notice on its website, and
  • give a notice setting out the reasons for and the effect of the modification.