The Assistant Treasurer, Senator Nick Sherry has today announced the Rudd Government will put in place a new tax system for Managed Investment Trusts (MITs) for commencement on 1 July 2011.

The $120 million overhaul includes a dedicated new tax regime for MITs that will remove longstanding investor uncertainty in the interaction of Australian tax and trust law.

In doing so, the Rudd Government will also significantly simplify the administration of the Australian managed funds sector to support Australian jobs and the investment returns of millions of Australian investors.

The reforms announced today are the Rudd Governments response to the Board of Taxations (Board) report into the tax arrangements applying to MITs, which the Assistant Treasurer also released today.

Managed investment trusts form a very important part of our economic architecture in Australia, said the Assistant Treasurer.

Many millions of Australians are investors in MITs, either directly or indirectly through their retirement savings.

As such, much turns on the tax treatment of MITs and we feel that the current tax rules are complex, uncertain and unsustainable in the modern economy, the Assistant Treasurer said.

I know from wide-ranging discussions across Australia that industry feels the same way.

The range of uncertainties at the moment is unacceptable. Just one example is that trust law and tax law can produce different outcomes, even in such basic areas as what investment return is due to be paid and then what is taxable in the hands of investors.

Under the current present entitlement system, trust beneficiaries may be taxable on amounts, such as capital gains, that they are not entitled to receive and trustees may be taxed on capital gains that they have already distributed to investors.

Its for these compelling reasons that the Rudd Government is today announcing a package of reforms that are the most ambitious yet seen.

They amount to a complete re-write of how MITs are taxed a new system for MITs.

The key features of the new MIT tax system are:

• the provision of an elective attribution system of taxation to replace the present entitlement system the concept of what trust income means was the subject of a High Court decision in recent weeks that failed to provide judicial clarity;
  • this new attribution system will provide that investors will be taxed only on the income that the trustee allocates to them on a fair and reasonable basis, consistent with their entitlements under the trust deed or the trusts constituent documents.
• establishing the ability to deal with over or under distributions within a five per cent cap so that trusts are not required to reissue statements and investors are not required to revisit tax returns;
• removing double taxation; and
• abolishing Division 6B of the Income Tax Assessment Act 1936 which relates to corporate unit trusts and which the Board found redundant.

The new arrangements will commence on 1 July 2011. In establishing the new MIT tax system, the Government is accepting 38 of the Board s 48 recommendations.

The Government will undertake further sector and community consultation on the details and supporting legislation for the new tax system for MITs in coming months.

The outcome of the changes will be increased investment, more Australian jobs in financial services and a more efficient and profitable funds management industry, the Assistant Treasurer said.

These changes will also directly benefit almost every single Australian who, although they may not be fully aware of it, have extensive investments in MIT structures through their super funds, and thats in addition to the approximately 630,000 individual Australian taxpayers who received a distribution from a MIT in 2008.

The changes will also support our work to enhance Australian as a financial services hub.

This fulfils an election commitment - even before coming to government, in August 2007, we announced that a Labor Governments first reference to the Board of Taxation would be a review of the tax arrangements applying to managed funds, the Assistant Treasurer said.

As part of the initial response to the Boards report, the Rudd Government has already introduced into Parliament an extended form of its 2009-10 Budget measure to allow a MIT to elect to have the capital gains tax regime as the primary code for taxing gains and losses on the disposal of key investments.

Todays important announcements complete the Rudd Governments response to the Boards work and substantially builds on the capital election measure currently before Parliament, the Assistant Treasurer said.

The Boards recommendations and the Governments full responses are attached.

We have decided to defer consideration of a small number of recommendations of the Board to consult with industry to further assess their benefits, relative to the potential cost to revenue, said the Assistant Treasurer.

The full BOT report is available at www.taxboard.gov.au

SYDNEY

7 May 2010

Media Contact: Joe Scavo 0413 800 757