Funds Managing Tax Monitor

• Managed Investment Trust (MIT) WHT on fund payments to non-residents of Exchange of Information (EOI) countries has increased from 7.5% to 15%
• No grandfathering for long-term deals signed in reliance on the 7.5% rate
• List of EOI countries has been updated.

• Royal Assent on 29 June 2012
• Fund payments made on or after 1 July 2012.

• Concessional final WHT of 10% on fund payments from eligible 'Clean Building' MITs made to non-residents of EOI countries
• MIT must hold one or more clean buildings which are new energy-efficient buildings for which construction began on or after 1 July 2012
• Special rules allow character to flow through a chain of trusts – meaning a new line item for distribution statements.

• Tax Laws Amendment (Clean Building Managed Investment Trust) Bill 2012 awaiting royal assent
• Fund payments made on or after 1 July 2012.

• 'Conduit income' measure – Certain widely held foreign funds will not be subject to Australian tax solely because the fund engages the services of an Australian-based agent, manager or service provider
• 'FIN48' measure – For foreign funds which have not lodged a tax return or have had an assessment made of their income tax liability, certain income may be disregarded or treated as Non Assessable Non Exempt income.

• Royal Assent on 13 September 2012
•  'Conduit income' measure –  1 July 2011 onwards
• 'FIN48' measure – 1 July 2011 and earlier income years.

• Non-residents will no longer be eligible for the CGT 50% discount in respect of capital gains that accrue after 8 May 2012. The 50% CGT discount will still be available for capital gains that accrued before this time, but only where the non-resident chooses to obtain a market valuation of their CGT assets as at 8 May 2012. This measure primarily affects direct investments in Australian real property (or non-portfolio holdings) held through trusts.

• Applicable to CGT gains accruing after 8 May 2012.

• Certain institutions (such as banks, hedge funds and superannuation funds) will be required to report information about offshore accounts and investments held by U.S. taxpayers to the U.S. Internal Revenue Service annually or withhold 30% of certain payments relating to U.S.-sourced income

• The Australian Government is exploring the feasibility of an intergovernmental agreement (IGA) with the U.S. The objective of such an agreement would be to minimise compliance costs for Australian stakeholders.

• The two models proposed in the Policy Options Paper released by the Assistant Treasurer are:
  • The 'economic benefits model'  – this would assess beneficiaries on taxable amounts 'distributed' or 'allocated' to them, with the trustee assessed on any remaining taxable income
  • The 'proportionate assessment model'  – this would assess beneficiaries on a proportionate share of the trust's taxable income equal to their proportionate share of the 'trust profit' of the relevant class.

Note that these measures are only intended to apply to entities that are outside the new MIT regime, which is proposed to commence at the same time.

• Policy Options Paper released 24 October 2012
• Consultation in progress
• Release of exposure drafts expected in early 2013
• Introduction of legislation expected mid-2013
• Proposed reforms to commence on 1 July 2014.

• Key changes expected include:
  • Elective attribution regime, i.e. unit holders would be assessed on reasonable attribution of taxable income
  • Codified treatment of under/overs
  • Cost base uplifts (where taxable income exceeds distribution)
  • Corporate unit trust rules to prevent the transfer of businesses taxed at the company tax rate into trusts to be replaced by arm's length transaction requirement
  • The definition of 'public' to be amended to automatically omit trusts with 20% or more superannuation investors.

• Consultation in progress
• Release of exposure drafts expected in early 2013
• Introduction of legislation expected mid-2013
• Start date deferred – now proposed to be 1 July 2014.

• To address the problem that very few trusts are able to satisfy the existing definition without reliance on the Commissioner's discretion
• Proposal that MITs with clearly defined rights be given deemed fixed trust status is under consideration.

• Consultation in progress
• Proposed reforms to commence on 1 July 2014.

• 'Limited recourse debt' definition amended to include arrangements where the creditor's right to recover the debt is effectively limited to the financed asset or security provided
• Potentially relevant for special asset investments in infrastructure/real estate.

• Exposure draft legislation and explanatory memorandum released October 2012. Submissions due by 12 November 2012.

• Limitations of taxation regimes of collective investment structures (e.g. MITs)
• Benefits of broader range of tax flow-through vehicles.

• Board of Taxation report provided in December 2011
• Government yet to indicate response to Board of Taxation findings.

• The potential changes mooted in the federal Budget include a reduction in the 'safe harbour debt' ratio from 75% to 60% and the removal of the arm's length debt test
• Relevant for specialist asset structures with high gearing.

• Discussion paper released for submissions on 21 September 2012.
• No clear recommendation made by Business Tax Working Group (BTWG).

• Integrity rule specifically targeted at portfolio investments of Australian residents in foreign accumulation or roll-up funds
• The new rules have a more streamlined application than the predecessor Foreign Investment Fund rules that have been repealed. 

• The FAF integrity rule will not apply for the 2010-11 income year, as previously announced by the Government. The FAF rules will only have application for income years starting on or after the date it receives royal assent.

• Improve targeting of CFC rules
• Simplify legislation
• Increase access to dividend exemptions and methods
• Improve integrity provisions.

• Submissions on draft legislation released in February 2011 under review
• Further consultation expected to be undertaken in 2012
• Measures deferred until at least 1 July 2013.

• Proposed reforms to deny a bad debt deduction where the debtor is a related party not in the same tax consolidated group
• Of particular interest is the meaning of "related party".  Essentially, the proposed definition is intended to encompass the existing definitions of "associate" (contained the CFC provisions) and "associated entity" (in the thin capitalisation provisions). 

• Submissions on Discussion paper closed on 10 August 2012.

• BTWG unable to recommend a revenue-neutral package to lower the company tax rate
• BTWG had received feedback from many businesses asserting that they would be worse off as a result of the trade-offs canvassed in a previously released Discussion Paper. These trade-offs included reducing the amount of depreciation companies could claim and forcing businesses to finance their operations with more equity and less debt.

• Draft final report released 24 October 2012
• BTWG will not be seeking written submissions, but intends to shortly submit its final report to the Deputy Prime Minister and Treasurer.

• Landholder duty was introduced from 1 July 2012 in Victoria. This substantially reforms the stamp duty applicable to transfers of interests in landholding entities (e.g. it introduces new threshold for units)
• Taxpayers should consider the impact in respect of any transaction that involves an interest in Victorian land pre- or post-1 July 2012, including acquisitions, IPOs and/or restructures and seek advice for any dealings.

• Commencement – from 1 July 2012.

• The Government has amended the RITC applicable to the costs of certain managed investment schemes and superannuation funds. Broadly, the change seeks to reduce the RITC to 55% (rather than the normal 75% level) for the GST incurred by affected entities on business costs. All acquisitions are potentially affected, not just those supplied by an entity's trustee or responsible entity.

• Commencement – from 1 July 2012.