As noted in our Budget update last year, Treasury deferred the start date of the new tax system for MITs by 12 months, to 1 July 2015.
Prior to this year’s Budget, the Government released exposure draft legislation in relation to the new tax system for MITs. In broad terms, those measures create a new category of MIT, Attribution MITs (AMITs),where trusts which qualify as AMITs would benefit and would be subject to the following key measures (amongst others):
- attribution regime, pursuant to which unit holders would be assessed on a reasonable attribution of taxable income;
- codified treatment of under/overs; and
- introduction of an arm's length transaction requirement
The Government is proceeding with this new regime but with a 12 month transition period. That is, the rules will now apply from 1 July 2016 but qualifying trusts can choose to apply them from an earlier start date of 1 July 2015. This announcement is a response to feedback from stakeholders that many MITs require additional time to amend their trust deeds and their IT systems.
Importantly, MITs and other trusts treated as MITs will continue to be allowed to disregard the trust streaming provisions for the 2015-16 income year.
While the new regime has been described as reducing compliance costs and making Australian managed investment funds more attractive, a careful review of the detail of the legislation reveals that there is significant compliance complexity for trusts that fall within the new regime and certain issues such as “fixed trust” status, have been replaced with concepts which are untested and which potentially lead to more confusion and uncertainty for funds and their investors. Accordingly this additional year of transition will be important to enable legislative interpretations and ATO enforcement strategies to be developed and discussed with key stakeholders.
Changes to taxation of employee share schemes
These measures were announced prior to the 2015 Budget, with a bill for their introduction currently before Parliament. Broadly, the proposed new rules provide for more concessionary taxation for employees in receipt of shares or options in their employer at a discount to market value (with particularly generous concessions available for start-up companies). In welcome news, start-ups in receipt of venture capital funding from venture capital limited partnerships or early stage venture capital limited partnerships will not have their turnover aggregated with other portfolio companies when determining the $50m aggregated turnover test for start-up eligibility. This particular issue was identified by the Tax team at Gilbert + Tobin, who contributed to a submission to Treasury identifying and providing potential solutions for the issue.
Upfront deduction for professional expenses incurred by start-ups
From the 2015-16 income year, new start-ups will be able to access immediate deduction on a range of professional expenses associated with the start-up, such as professional, legal and accounting advice. This concession has expanded the existing section 40-880 business related costs, which only allows certain expenses to be deducted over 5 years that is not otherwise deductible under another section of the tax legislation.