Managed Investment Trusts (MITs) are a common vehicle for foreign investment in infrastructure and real estate in Australia. This alert may be relevant for MITs that own Australian assets and investors in MITs.
On 3 December 2015, legislation containing a proposed new tax regime for MITs was introduced into the Federal Parliament. When enacted, these new rules will apply, by election of the trustee of the MIT, to income years commencing on or after 1 July 2016, unless a taxpayer chooses to apply the rules one year earlier.
The new tax regime will be available to MITs that are ‘Attribution Managed Investment Trusts (AMITs)’. Broadly, an AMIT is a MIT where the rights to income and capital arising from each of the membership interests in the trust are clearly defined. To implement the new regime and/or to fully realise the benefits of the new regime, it is likely that trustees or managers of MITs will need to address a number of issues including determining whether or not existing trust deed provisions require any change (for example, the trustee of a MIT may require certain powers that they do not currently possess under the trust deed such as the discretion as to the amount of income to be distributed or retained in the trust).
For MITs which are registered managed investment schemes, these trusts will be provided with a safe harbour under which they are deemed to have clearly defined rights and it is therefore anticipated that to the extent any changes are required for these types of MITs, the change should be minimal. For other types of MITs, the precise nature of the trust deed amendments that may be required in order to fully utilise the AMIT Regime benefits will depend upon the scope and nature of the existing powers a MIT trustee has under the trust deed. Trustees will therefore need to carefully consider whether any amendment can be made unilaterally (in reliance on an existing amendment power in the trust deed) or whether, in the absence of reliance on an existing power or ASIC wide class order relief, a members’ approval is first required. From an income tax perspective, it is broadly expected that the vast majority of trust deed amendments required would not have any income tax consequences (i.e. they will not trigger a CGT event or the loss of carried forward losses). This is consistent with the ATO’s view in TD 2012/21, and the comments included in the Explanatory Memorandum that accompanies the new law.
The stamp duty outcome, which is administered by the State and Territory revenue offices, must also be considered. Any amendment or variation to a trust deed that has the effect of declaring, restating or reconfirming the trust could trigger ad valorem stamp duty at up to 5.75% of the gross market value of the assets. In other words, a stamp duty liability could be triggered even though the amendment or variation has no income tax consequences. Accordingly, all amendments or variations to trust constituent documents should be carefully drafted to avoid giving rise to a significant stamp duty exposure.
Any amendments or variations to any trust constituent documents should be reviewed from a stamp duty perspective in draft before signing, even if the amendments or variations appear minor and have no income tax consequences.