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Chapter 6
Schedule 5—managed funds
6.1
Schedule 5 to this bill amends Division 6C of the Income Tax
Assessment Act 1936 (ITAA 1936) to streamline and modernise the eligible
investment business rules for managed funds.
6.2
These amendments aim to:
- clarify the scope and meaning of investing in land for the
purpose of deriving rent;
- introduce a 25 per cent safe harbour allowance for non-rental,
non-trading income from investments in land;
- expand the range of financial instruments that a managed fund may
invest in or trade; and
- provide a 2 per cent safe harbour allowance at the whole of trust
level for non‑trading income.
6.3
The introduction of these amendments will make it easier for
managed funds, in particular property trusts, to comply with the law by
reducing the scope for them to breach inadvertently Division 6C.
6.4 These amendments will clarify the scope and meaning of 'investing
in land for the purpose of deriving rent'. It achieves this by ensuring that this
clause is taken to include investing in fixtures on the land and movable
property (i.e. chattels) customarily supplied, incidental and relevant to the
renting of the land and ancillary to the ownership and utilisation of the land.
6.5
These amendments will introduce a 25 per cent safe harbour
allowance for non-rental, non-trading income from investments in land. The
allowance is to operate as a safe harbour in conjunction with the existing
rental purpose tests on an overall land portfolio basis. If a trust does not
meet this safe harbour, it can assess whether it is investing in land for the
purpose, or primarily for the purpose of deriving rent under the existing law
(i.e. paragraph (a) of the definition of 'eligible investment business' in
section 102M).
6.6
The explanatory memorandum provides the following example of the proposed
law:
A public unit trust invests in land used as a shopping centre.
The property includes some fittings and moveable furnishings in the common
areas that are for use by centre customers. The investment in the fittings and
moveable property are included as part of the investment in land.[1]
6.7
The Property Council of Australia submitted that these proposed
changes will help modernise Australia's Real Estate Investment trust rules:
The new safe harbour framework provides clearer boundaries
regarding the types of income a trust can earn, which makes it easier to
understand the ground rules for distributing untaxed income to beneficiaries.[2]
6.8
Beyond the comment offered by the Property Council of Australia,
the committee received no submissions on the proposed changes contained in Schedule
5.
Senator Annette Hurley
Chair
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