The Federal Government has proposed amendments that will allow foreign pension and sovereign wealth funds to access the Managed Investment Trust (MIT) withholding tax regime.

In summary, the proposed bill provides foreign pension funds, who invest in Australian managed investment schemes, with access to the reduced rate of withholding tax under the MIT withholding tax regime. The regime allows a MIT to make payments to non-residents at concessional withholding tax rates, offering an attractive Australian investment option for foreign funds where they and their members are ultimately based overseas.

The amendments under the Bill are proposed to have retrospective effect and will apply to all fund payments made on or after 1 July 2008.

FOREIGN PENSION FUNDS ELIGIBLE FOR MIT WITHOLDING TAX REGIME

In 2013, we published an article regarding the former Government’s intention to amend tax laws to ensure that foreign pension funds could access the withholding tax regime. Since then, the Government has introduced the Tax and Superannuation Laws Amendment (2014 Measures No 6) Bill 2014 proposing to implement those changes.

Previously, payments made by MITs to foreign pension funds were subjected to higher marginal tax rates because the funds did not fall into the statutory definition of an eligible beneficiary under the MIT withholding tax regime. The amendment proposes to amend the definition to include foreign pension funds.

Not all foreign pension funds will be eligible for the MIT withholding tax regime. Under the amendment, a foreign pension fund will only have access to the regime if the entity:

  • is a pension fund established by an exempt foreign government agency;
  • is a pension fund established under a foreign law for an exempt foreign government agency; or
  • is a foreign superannuation fund that has at least 50 members.

AMENDMENT IS RETROSPECTIVE

The amendments under the Bill are intended to apply retrospectively to any fund payment made by an Australian MIT on or after 1 July 2008. This means that eligible foreign pension funds will be entitled to make an application to the Commissioner of Taxation to have a tax assessment amended and assessed under the MIT withholding tax regime. 

NEXT STEPS

The Bill has currently been referred to the Senate Economics Legislation Committee for consideration and it is expected that the committee will release a report by 25 November 2014. If you have any questions regarding the Bill or the proposed amendments to the MIT withholding tax regime as it applies to foreign pension funds, please contact a member of our team listed in this publication.