Government set to clarify rules for managed investment trusts

The Government will take another step towards reforming Australia’s complex trusts laws by making changes to the laws governing managed investment trusts.

According to a report in the Australian Financial Review, Assistant Treasurer Nick Sherry will introduce new changes to promote certainty and investor confidence in management investment trust products, which are typically used in the financial services and property sectors and are often parts of stapled groups.

The tax counsel for the Institute of Chartered Accountants, Yasser El-Ansary, says prominent examples of MITs that are stapled to companies include property companies Mirvac and Goodman Group.

“The trust part of the corporate group is usually held as a long-term investment vehicle. If the trust generates a capital gain, that flows through to unit holders or investors. If a trust generates income, that flows through the investors.”

The Governments says 630,000 individuals receive distributions from MITs, as do 276,000 businesses and superannuation funds.

The key change will mean investors will only be taxed on income allocated to them on a fair and reasonable basis by the trustee and in line with the trust deed, meaning beneficiaries will not be taxed on money they do not receive.

Other changes include a “carry over” rule for distributions for under and over distributions of up to 5%, new laws to remove double taxation and the abolishment of corporate unit trusts laws which the Board of Taxation considered redundant.

El-Ansary welcomed the changes, which will cost the Federal Budget $120 million over the next four years.

“It will provide maximum certainty for investors and trustees that the way that they account for income and expenses is correct, and the investors have the same level of certainty for them.”

His organisation has been pushing for Australia’s complex tax laws to be reviewed to ensure certainty for taxpayers and El-Ansary sees this is a positive first step.

“It’s time to modernise the way that our tax laws apply to managed investment trusts. It’s well overdue.”