TAX NEWS - JUNE 2010

Australia Tax: Report on taxation of managed investment trusts

The report into Australia Board of Taxation's review into the taxation of managed investment trusts (MITs) has now been released, along with the Government's response to the recommendations. The Board of Taxation made 48 recommendations. The Government has accepted 38 of those recommendations.   

Some of the recommendations that have been accepted include:

- Moving to an attribution method of taxation, rather than the current method which relies on the present entitlement of the beneficiaries. The attribution method of taxation will involve the beneficiaries being taxable on the amount of taxable income allocated to each beneficiary by the trustee (which must occur on a fair and reasonable basis consistent with their rights under the trust). The trustee will be taxed at the highest marginal rate on any taxable income that it fails to allocate within three months of the end of the financial year, net "unders" in excess of 5% if it chooses not to reissue the distribution statements and amounts that are attributed to non-residents where the withholding rules don't operate effectively.

- Introducing a 5% de minimus rule for tax "overs and unders" to avoid the need for trustees to reissue distribution statements where they later discover that the taxable income disclosed is incorrect. The overs and unders will carry forward to the following year without penalties or interest.

- Allowing certain cost base adjustments to units to avoid double taxation.

- Repealing Division 6B of the Income Tax Assessment Act 1936 (which relates to certain corporate reorganisations) and replacing it with an arm's length rule in the current public trading trust provisions (in Division 6C).

- Adjusting the requirement that trusts trace through to determine whether "exempt entities" have greater than a 20% entitlement to determine whether the trust is a public unit trust. It is proposed that "exempt entities" will now be limited to entities that are exempt from tax and are not entitled to a refund of franking credits. It will no longer include complying superannuation funds.