Today, the Tax Laws Amendment (New Tax System for Managed Investment Trusts) Bill 2015 and related Bills were passed in the Senate. These Bills contain the legislation to implement the new tax regime for managed investment trusts (MITs) and a number of related amendments. The proposal endured a lengthy consultation period, and a further six months has elapsed since the Bills to implement the MIT Regime were introduced into parliament. However, subject to the Bills receiving Royal Assent, the MIT Regime will now become a reality.
Given this important development, in this TaxTalk article we highlight some key steps and questions that should be considered by those impacted by the changes, particularly for those affected where an implementation plan is not already in progress.
Next steps toward implementation of the MIT regime
The new provisions are complex and far reaching in their impacts on fund managers, custodians and unit holders. Implementation of the MIT regime will require changes to operations, service arrangements, reporting to investors and product planning and development. The following key questions and actions will need to be considered:
- Should existing and new trusts choose to be an AMIT (and from when)? Should early adoption be considered?
- What will be the approach to `unders' and `overs' for trusts that are not AMITs?
- Where relevant, what is the impact of the non-arm's length rule on existing and new structures, and what changes will be required to be implemented during the relevant transitional period? What structuring opportunities are created by the changes to the MIT definition and to Division 6C?
- Where a trust ceases to be subject to Division 6C, will the transitional rules operate effectively?
- What are the withholding and CGT implications for non-MIT trusts that discover that due to the
changes to the definition of a MIT, they were in fact a MIT from as early as 1 July 2014?
Funds that choose to be AMITs
Managing the implementation
- Potential opportunities and risks arising from the new regime should be determined and communicated to key business stakeholders.
- Responsibilities should be allocated and a timeline for required actions determined.
Changes to products, trust deeds and marketing material
- It is likely that amendments to trust deeds will be required or desirable to deal with attribution, streaming of capital gains etc. Care will be required not to trigger trust resettlement.
- Updates to Product Disclosure statements and marketing material may be required.
- The impacts on existing products and the development of new products must be determined.
- The potential interaction of the new regime with other changes proposed should be considered. Forexample, linking the multi-class election with developments such as CIVs and the Asia Funds Passport.
Tax compliance, processes, policies and risk framework
- What is the impact on processes for year end with respect to tax policies, and the tax risk management framework of the trustee in general?
- Does the attribution system create opportunities for changes to trust distribution policies?
- Outside of draft guidelines issued by the ATO, how will the "reckless" and "intentional disregard of the law" standards employed in relation to unders and overs be applied to the practices of the industry?
- What is the impact of the new rules on due diligence procedures where trusts are acquired?
- What are the implications of the changes for systems (including unit pricing and registry) such as:
- the ability to accommodate the attribution system;
- cost base increases, and providing cost base information to unit holders;
- withholding tax outcomes (e.g. where no cash distributed);
- new compliance requirements (e.g. AMMA statements and a specific AMIT income tax return, to be lodged electronically).
There are broad reaching and significant considerations for those impacted by the MIT regime changes. For a detailed discussion on the MIT legislation including its key features; and application to Investment Management, Infrastructure and Real Estate sectors, refer to our December 2015 TaxTalk alert: "Legislation to implement the new Managed Investment Trust Regime introduced into Parliament" To discuss how this legislation may apply directly to your business, please contact your usual PwC advisor or any of the attached contacts.