Bills Digest no. 146 2007–08
Income Tax (Managed Investment Trust Withholding Tax) Bill
2008
WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.
CONTENTS
Passage history
Purpose
Background
Financial implications
Main provisions
Concluding comments
Contact officer & copyright details
Passage history
Tax Laws Amendment (Election Commitments No.
1) Bill 2008
Income Tax (Managed
Investment Trust Withholding Tax) Bill 2008
Income Tax (Managed
Investment Trust Transitional) Bill 2008
Date
introduced: 4 June
2008
House: House of Representatives
Portfolio: Treasury
Commencement:
On Royal
Assent.
Links: The
relevant links to the Bill, Explanatory Memorandum and second
reading speech can be accessed via BillsNet, which is at http://www.aph.gov.au/bills/.
When Bills have been passed they can be found at ComLaw, which is
at http://www.comlaw.gov.au/.
The purpose of this package of three Bills is twofold:
- to provide a new final withholding tax regime for certain
distributions from Australian managed investment trusts; and
- to provide income tax exemption for the Prime Minister s
Literary Awards.
A trust is a managed investment trust (MIT) in relation to an
income year if, amongst other things, the trust is a managed
investment scheme as defined by section 9 of the Corporations
Act 2001.[1]
Managed investment schemes are also referred to as 'managed
funds', 'pooled investments' or 'collective investments'. The
Australian Securities and Investments Commission (ASIC) in its
website sets out examples of what types of entities that could
be MISs and what are not, as follows.
Managed investment schemes are also known as
'managed funds', 'pooled investments' or 'collective investments'.
Generally in a managed investment scheme:
- people are brought together to contribute money to get an
interest in the scheme ('interests' in a scheme are a type of
'financial product' and are regulated by the Corporations Act
2001)
- money is pooled together with other investors (often many
hundreds or thousands of investors) or used in a common
enterprise
- a 'responsible entity' operates the scheme. Investors do not
have day to day control over the operation of the scheme.
Managed investment schemes cover a wide variety
of investments. Some of the popular managed investment schemes that
may be offered include:
- cash management trusts
- property trusts
- Australian equity (share) trusts
- many agricultural schemes (eg horticulture, aquaculture,
commercial horse breeding)
- international equity trusts
- some film schemes
- timeshare schemes
- some mortgage schemes
- actively managed strata title schemes.
What types of investments are NOT
managed investments schemes?
Generally, only investments that are 'collective' are managed
investment schemes. Some examples of investments that are
not managed investments schemes include:
- regulated superannuation funds
- approved deposit funds
- debentures issued by a body corporate
- barter schemes
- franchises
- direct purchases of shares or other equities
- schemes operated by an Australian bank in the ordinary course
of banking business (eg term deposit).
Further details of the regulatory measures applicable to them
are available in the same ASIC website.
Australia is considered to be one of the major markets for funds
management, with the industry managing assets work more than $1.4
trillion.[2] A
feature of the industry is its increasing globalisation, with 20
per cent of assets held by Australian management funds now being
overseas assets.[3]
The property trust sector forms a key part of the industry, and
comprises around 40 per cent of Australian unit trusts. Australian
listed property trusts (where the units are listed on the
Australian Securities Exchange) currently represent 12 per cent of
the world s listed real estate assets, despite Australia
geographically comprising only 2 per cent of global real estate.
Assets in property trusts are growing strongly, with over 40 per
cent of these assets comprising overseas property. This sector is
more internationalised than the industry generally. Foreign
investment in Australian property trusts amounts to approximately
28 per cent of total investment in those trusts. Much of this is
managed by Australian custodians.[4]
Under current tax law Australian sourced dividend, interest and
royalty income paid to foreign investors is subject to final
withholding tax at the rates of 30 per cent, 10 per cent and 30
percent respectively. These rates may be lower under Australia s
tax treaties.
Distributions of other Australian sourced income, mainly, income
related to property (that is, rental income and capital gains) are
presently liable to non-final withholding at the rate of 30
percent.
As part of the 2007 election, the Australian Labor Party (ALP)
promised to lower the level of withholding tax on certain MIT
distributions to foreign resident investors.
Labor will make Australian managed investment
funds even more attractive to non-resident investors by relieving
the tax burden. Labor s initiative will see the current 30 per cent
withholding tax on distributions from Australian managed funds to
non-resident investors halved to 15 per cent.[5]
This policy commitment stems back to the ALP dissenting report
to the Senate Standing Committee on Economics inquiry into the Tax
Laws Amendment (2007 Measures No. 3) Bill 2007 [Provisions] in June
2007:
The ALP proposes to halve the 30 per cent
withholding tax on distributions from Australian managed funds to
non-resident investors. This proposed 15 per cent rate is at the
upper end of relevant international rates. It will place Australian
fund managers in a much better position to be able to compete to
manage the global pool of managed funds, which is tipped to reach
$60 trillion over the next three years.[6]
However, when the initiative was formally announced as part of
the 2008-09 Budget by the Treasurer, the Hon. Wayne Swan, the
reduction in withholding tax was greater than previously
foreshadowed:
The Government has tonight announced it will
substantially reduce the level of withholding tax from a non-final
rate of 30 per cent to a final rate of 7.5 per cent on certain
distributions from Australian managed investment trusts (MITs) to
foreign resident investors. These arrangements will make
Australia's withholding tax rate one of the most competitive in the
world, and provide a significant boost to Australia's ability to
compete globally.[7]
Schedule 1 of the Tax Laws Amendment (Election
Commitments No. 1) Bill 2008 and the companion Income Tax (Managed
Investment Trust Withholding Tax) Bill 2008 and the Income Tax
(Managed Investment Trust Transitional) Bill 2008 will put in place
a new final withholding tax regime for Australian managed
investment trusts (MITs) on certain distributions called fund
payments made to foreign investors resident in certain countries
listed in regulations referred to as information exchange countries
at the following rate:
- 22.5 per cent for certain distributions in relation to the
first income year starting on or after the first 1 July after the
day on which Royal Assent is received for these bills;
- 15 per cent for certain distributions in relation to the second
income year starting on or after the first 1 July after the day on
which Royal Assent is received for these bills;
- 7.5 per cent for certain distributions in relation to the third
and later income years starting on or after the first 1 July after
the day on which Royal Assent is received for these Bills.
In his first ten days in office Kevin Rudd announced a Prime
Minister's literary award, funded to the tune of $1.2 million over
four years, with the winner of each of the fiction and non-fiction
categories to receive $100,000 tax-free.[8]
The Minister for Environment, Heritage and the Arts announced
the inaugural Prime Minister s Literary Awards as two tax-free
prizes of $100,000 for fiction and non-fiction works on 22 February
2008.[9]
Schedule 2 of the Tax Laws Amendment (Election
Commitments No. 1) Bill 2008 aims to make the inaugural Prime
Minister s Literary Awards tax-free.
Commentary on the reduction of the withholding tax has been
substantially positive. Debate has centred on whether the reduction
will help the industry s export ability, and the surprising reduced
rate of 7.5 per cent.
In the week after the announcement, the Australian Financial
Review provided the following commentary:
The federal government's initiative to slash
the rate of withholding tax on distributions of Australian managed
investment trusts to foreign investors has been warmly received by
the property investment sector. But some argue it has failed to
address the competitiveness of the broader funds management
industry in Australia. The budget last week delivered bigger than
expected withholding tax cuts.[10]
Property investment specialists yesterday
applauded the federal government's plans to reduce the rate of
withholding tax on distributions from Australian managed investment
trusts to foreign resident investors by double the expected margin.
Before coming to power, Labor had pledged to cut the rate of
withholding tax to 15 per cent from 30 per cent in an attempt to
promote the export of Australian financial services and create a
regional financial services hub. The decision to reduce the rate to
7.5 per cent in three years' time caught the industry off
guard.[11]
The Australian Financial Review also reported Perennial
Investment Partners chairman Michael Crivelli as questioning
whether there should be taxes on funds management services at
all:
with the withholding tax cuts largely
benefiting the real estate investment trusts, it did not go towards
addressing the broader competitiveness of Australia as a funds
management services provider on the world stage. He said the
Australian regime should follow the tax-less model of Ireland and
Luxembourg if the country wanted to be serious about attracting
offshore money.[12]
Industry organisations have been very supportive of reduction in
withholding tax. Property Council Chief Executive Peter Verwer said
in a media release:
This reform has come at a critical time for the
real estate funds industry which is facing increased global
competition for capital and a tightening market.
With the global market shake up, investors are
searching for value and will not pay 30% tax in Australia when
they can invest overseas for less than half that cost.
This measure is vital to retaining Australia s
competitive advantage as a real estate fund manager and building
our capacity as a financial hub in the region.[13]
Investment and Financial Services Association (IFSA) CEO Richard
Gilbert has continued the association s support of the reduction
after its
submissions to the Senate Committee in June.
Overall, the Budget strategy places Australia
on a sound, longer-term footing, with a focus on economic growth,
lower inflation and productivity improvements in the context of a
challenging global and domestic economic environment.
The decision to lower the Withholding Tax rate
is critical to the maintenance of high levels of long-term offshore
capital inflows to Australia. The management of these flows by
Australian fund managers will enable additional investment into
Australian infrastructure and property assets.[14]
Likewise, AMP Capital Managing Director Stephen Dunne has also
welcomed the increased competitiveness the industry will
experience.
Reducing the withholding tax for foreign
residents will strengthen Australia s competitiveness as an
international investment centre.
Australia is home to one of the world s leading
funds management industries. As international pension markets
continue to grow, Australia is well positioned to service the
investment needs of these markets.[15]
In contrast, Deloitte International Tax Leader Peter Madden
welcomed the reduction but questioned how successful it would be in
enhancing Australia s future as a regional financial hub.
Whilst the proposed 7.5% tax rate for foreign
residents investing in Australian property trusts will be good for
the commercial and rural property sectors, it is questionable how
this enhances Australia as a regional financial hub.
The ultimate measure of success will be when
fund managers move to Australia from established centres such as
Singapore and Hong Kong as a result of such measures.[16]
The Tax Laws Amendment (Election Commitments No. 1) Bill 2008
only relates to making the award tax-free. It does not relate to
the establishment of the awards, which does not require
legislation.[17] As
such, the following commentary is provided for context only.
The announcement of the Prime Minister s Award served as an
indication of how the Rudd Government would be treating the Arts
community:
On the positive side was the announcement by
Kevin Rudd in his first 10 days in office of a Prime Minister's
literary award, funded to the tune of $1.2 million over four years,
with the winner of each of the fiction and non-fiction categories
to receive a $100,000 tax-free booty. The symbolism in the
commitment - that the arts will occupy a more central role in
society than they did under the Howard government - was reiterated
this week by the inclusion of arts, film and design as one of 10
areas to be discussed at the government's 2020 Summit.[18]
Melbourne University Publishing CEO Louise Adler was likewise
quoted in the Australian:
While congratulating the Government on its new
$100,000 Prime Minister's literary award, she said the gesture
needed to be underpinned by a commitment to the cyclical
regeneration of such vital organisations as the ABC and the
Australia Council .[19]
There has been some
criticism that the judging panel will not have final say, and can
instead be overridden by the Prime Minister:
Kevin Rudd has reserved the right to overrule
the judges of the inaugural Prime Minister's Literary Awards, with
those chosen to pick the winners discovering only yesterday that
their word may not be final.
I d be extremely pissed off if our
recommendations were not accepted, said author John Marsden, one of
the six eminent Australians announced yesterday for the judging
panel. I m sure in practical terms they ve only put that in case we
do something scurrilous. [20]
The Explanatory Memorandum states that the financial impact
(loss of government revenue) of the new management investment trust
withholding tax regime is as set out in the following
table.[21]
|
2008-09
|
2009-10
|
2010-11
|
2011-12
|
|
-$60m
|
-$125m
|
-$210m
|
-$235m
|
The Explanatory Memorandum states that the financial impact of
the exemption from income tax of the Prime Minister s Literary
Award will be nil.[22]
Main
provisions
Part 1 of Schedule 1 repeals
existing Subdivision 12-H of Schedule 1 of the Taxation
Administration Act 1953 (TAA 1953) and inserts
proposed Subdivision 12-H to provide for the
withholding obligations of payers, including custodians and other
entities, of certain income derived by foreign residents from
MITs.
Proposed section 12-375 outlines how the
withholding provisions in proposed subdivision
12-H will operate as follows.
A managed investment trust may be required to
withhold an amount from a payment of its Australian sourced net
income (other than dividends, interest and royalties) if the
payment is made to an entity whose address, or place for payment,
is outside Australia. If the payment is made to another entity, the
managed investment trust is required to make information available
to the recipient outlining certain details in relation to the
payment.
If a custodian receives a payment that is
covered by that information, it is required to withhold an amount
from any related later payment to an entity whose address, or place
for payment, is outside Australia. If the later payment is made to
another entity, the custodian is required to make information
available in relation to that later payment.
If an entity that is not a custodian receives a
payment that is covered by that information, it is required to
withhold an amount from that payment if a foreign resident becomes
entitled to that payment. If a resident becomes entitled to the
payment, the entity must make information available in relation to
that payment.
Proposed Subdivision 12-H includes key
definitions of managed investment trust and fund payment and
custodian considered below.
The rate at which tax is to be withheld by MITs, custodians and
other entities is set out in proposed subsections
12-385(3), 12-390(3) and
12-390(6) respectively as follows.
The rate is:
(a) if
the address or place for payment of the recipient is in an
information exchange country:
(i)
22.5% for *fund payments in relation to the first income year
starting on or after the first 1 July after the day on which the
Tax Laws Amendment (Election Commitments No. 1) Act 2008
receives the Royal Assent; or
(ii) 15% for
fund payments in relation to the following income year; or
(iii) 7.5% for fund payments
in relation to later income years; or
(b) otherwise 30%.
Proposed subsection 12-385 provides that an
information exchange country is a foreign country specified in the
regulations for the purposes of this section.
Proposed section 12-400 of new
Subdivision 12-H, sets out the meaning of managed
investment trust (MIT).
A trust is an MIT in relation to an income year if:
(a) the trustee of the trust makes the first
fund payment in relation to the income year; and
(b) the conditions in the table in proposed
subsection 12-400(1) are satisfied at the time the payment
is made.
These conditions are:
- the trustee was an Australian resident or the central
management and control of the trust was in Australia (conditions in
paragraph (a) and (b) respectively of table item 1 in
proposed subsection 12-400(1)), and
- the trust is a managed investment scheme, as defined in section
9 of the Corporations Act 2001 and is operated by a
financial services licensee as defined in section 761A of that Act,
whose licence covers operating such a managed investment scheme
(conditions in table item 2 in proposed subsection
12-400(1)), and
- units in the trust are listed in an approved stock exchange in
Australia (condition in paragraph (a) of table item 3 in
proposed subsection 12-400(1) or the trust has at
least 50 members , ignoring objects of a trust, (condition in
paragraph (b) of table item 3 in proposed subsection
12-400(1)), or one of the entities covered by a paragraph
of proposed subsection 12-400(2) is a member of
the trust (condition in paragraph (c) of table item 3 in
proposed subsection 12-400(1)).
The Explanatory Memorandum states that the requirement to ignore
the objects of a trust in the condition in paragraph (b) of table
item 3 is to ensure that a trust is widely held as a matter of
substance.[23]
Without this condition, a person could establish a trust that
purports to be widely held (by having more than 50 discretionary
beneficiaries) but is not widely held as a matter of substance.
The condition in paragraph (c) of table item 3 in
proposed subsection 12-400(1) is to ensure that a
trust will be considered to be widely held even if it has less than
50 members, if one of the members of the trust is an entity of a
kind specified in proposed subsection
12-400(2).
The
entities specified are:
- a life insurance company (proposed paragraph
12-400(2)(a));
- a complying superannuation fund, complying approved deposit
fund, or a foreign superannuation fund, as long as the fund has at
least 50 members (proposed paragraph 12-400(2)(b));
- an Australian resident trust that is a managed investment
scheme under the Corporations Act 2001 operated by a
financial services licensee whose licence covers operating such a
scheme and that is listed on an approved stock exchange or has at
least 50 members (other than objects of the trust)
(proposed paragraph 12-400(2)(c));
- an entity that is recognised, under a foreign law relating to
corporate regulation, as having a similar status to a managed
investment scheme and that has at least 50 members
(proposed paragraph 12-400(2)(d)).
In
addition, proposed paragraph 12-400(2)(e) provides
that a trust where:
(i)
the interests in which are owned directly or indirectly by an
entity covered by an earlier paragraph; or
(ii)
the interests in which are held indirectly by an entity covered by
an earlier paragraph through a chain of trusts
where
the trust or each trust in the chain satisfy the conditions in
proposed paragraph 12-400(2)(c), is a specified
entity.
Proposed section 12-405 of new
Subdivision 12-H of the TAA 1953 provides a meaning of
fund payment .
Proposed subsection 12-405(1) states that the
object of this section is to ensure that the total of the fund
payments that the trustee of a trust makes in relation to an income
year equals, as nearly as practicable, the net income of the trust,
disregarding certain excluded amounts,
These excluded amounts are:
(a) a dividend, interest or royalty payment
that is subject to, or exempted from a requirement to withhold
under Subdivision 12-F of Schedule 1 of the TAA 1953,
(b) a capital gain or capital loss from a CGT event
that happens in relation to a CGT asset that is not taxable
Australian property,
(c) amounts that are not from an Australian
source,
and disregarding deductions relating to excluded amounts.
The reader is referred to paragraphs 1.45 to 1.57 on pages 16 to
22 of the Explanatory Memorandum for details of the ascertainment
of a fund payment with an example.
Proposed subsection 12-405(2) contains a three
step method statement for working out the fund payment .
Steps 2 and 3 involve anticipating the expected amounts of net
income for the year and any later fund payments in relation to an
income year respectively by the standards of a reasonable person.
It involves an estimating process which calls for subjective
judgment.
However, the Explanatory Memorandum appears to suggest that that
the determination whether a payment is a fund payment is one that
can be done on an objective basis:
1.57 Whether it is reasonable to conclude a
specific portion of the payment is a fund payment is to be
determined on an objective basis. The test is whether a reasonable
person would consider that portion could be expected to form a part
of the net income (suitably adjusted) of the trust at the end of
the income year.[24]
It is inevitable that the practical application of the
provisions of proposed subsection 12-405(2) will
present compliance burdens for MITs and administrative costs to the
Commissioner as indicated below. Foreign investors too may be
involved in disputes with MITs as to what part of an actual payment
is a fund payment. This may involve challenging the subjective
forecasts made by MITs and the methodology followed in working out
particular fund payments.
Proposed subsections 12-405(4) and
(5) provide that a payment will not be a fund
payment in relation to an income year unless it is paid:
- during the income year;
- within three months after the end of the income year; or
- within a longer period as allowed by the Commissioner of
Taxation (the Commissioner), but not exceeding the end of the
income year.
This will involve the Commissioner being required to examine the
validity of applications for extensions with additional
administrative costs.
Proposed subsection 12-390(9) provides a
meaning of custodian and states that an entity is a custodian if
the entity is carrying on business that consists predominantly of
providing custodial or depository service as defined in section
766E of the Corporations Act 2001, pursuant to an
Australian financial service licence.
However, under proposed subsection 12-390(10)
the provisions for withholding by custodians and other entities in
proposed section 12-390 do not apply:
(a) to a company unless the company would,
apart from proposed section 12-420, be acting in
the capacity as agent for the recipient, or
(b) to an amount paid or received by an entity to
the extent that no managed investment trust withholding tax is
payable in respect of the amount or an amount reasonably
attributable to the amount.
The reader is referred to the Explanatory Memorandum, paragraphs
1.106 to 1.120,[25]
for details and examples of when withholding is not required by
custodians and other entities.
Part 2 of Schedule 1 inserts
new Division 840 into the Income Tax
Assessment Act 1997 (ITAA 1997) to provide the rules to
determine whether a foreign resident is liable to pay income tax in
respect of certain Australian sourced income paid by an MIT (other
than dividends, interest and royalties) to such foreign resident or
which such foreign resident is entitled to receive.
Briefly, the liability for MIT withholding tax is imposed on
foreign residents in respect of amounts received or amounts they
are entitled to receive, in respect of fund payments of a MIT. The
operative provisions are in proposed section
840-805 and covers payments from MITs (proposed
subsection 840-805(2)), payments from custodians
(proposed subsection 840-805(3)) and entitlements
from other entities (proposed subsection
840-805(4)).
When a liability to pay MIT withholding tax is established, the
liability is formally imposed, and the applicable rate is provided
for in Income Tax (Managed Investment Trust Transitional) Bill 2008
and the Income Tax (Managed Investment Trust Withholding Tax) Bill
2008, considered below.
Part 3 of
Schedule 1 includes consequential amendments to
the following Acts:
- Income Tax Act 1986,
- Income Tax Assessment Act 1936,
- Income Tax Assessment Act 1997,
- Income Tax (Transitional Provisions) Act 1997, and
the
- Taxation Administration Act 1953
Item 58 of Part 4 of
Schedule 1 provides that the amendments made by
Schedule 1 apply to fund payments made in relation
to the first income year starting on or after 1
July after the day on which this Act receives the Royal Assent and
later.
The amendments proposed by Schedule 2 are
intended to exempt the Prime Minister s Literary Awards from income
tax.
Item 1 to the Bill amends section 11-10 of the
Income Tax Assessment Act 1997 (ITAA 1997) to add the
Prime Minister s Literary Awards at the end of table item headed
prizes .
Item 2 adds proposed subsection
(3) at the end of section 51-60 of the ITAA 1997 to exempt
from income tax the Prime Minister s Literary Award, if it would
otherwise be assessable income.
Item 3 provides that the amendments made by
Schedule 2 apply to assessments for the 2007-08
income year and later income years.
The Income Tax (Managed Investment Trust Transitional) Bill 2008
imposes income tax on amounts attributable to fund payments derived
by foreign resident investors in accordance with section 840-805 of
the Income Tax (Transitional Provisions) Act 1997.
This Bill, when enacted, meets the requirement in section 55 of
the Constitution that a law imposing taxation shall deal only with
the imposition of taxation and any provision therein dealing with
any other matter shall be of no effect.
Proposed section 3 of the Bill provides that
tax known as income tax, to the extent that that tax is payable on
an entity in accordance with section 840-805 of the Income Tax
(Transitional Provisions) Act 1997, is imposed on amounts to
which that section applies.
Proposed section 4 of the MIT Transitional Bill
provides that the rate of tax imposed by this Act is 22.5%.
Proposed section 2 of the MIT Transitional Bill
provides that the Act commences on the day on which it receives the
Royal Assent.
The Income Tax (Managed Investment Trust Withholding Tax) Bill
2008 imposes income tax on amounts attributable to fund payments
derived by foreign resident investors under section 840-805 of the
Income Tax Assessment Act 1997.
This Bill, when enacted meets the requirement in section 55 of
the Constitution that a law imposing taxation shall deal only with
the imposition of taxation and any provision therein dealing with
any other matter shall be of no effect.
Proposed section 3 of the Bill provides that
tax known as income tax, to the extent that that tax is payable on
an entity in accordance with section 840-805 of the Income Tax
Assessment Act 1997, is imposed on amounts identified in that
section as the fund payment part.
Proposed section 4 of the MIT Withholding Tax
Bill provides that the rate of tax imposed by this Act is:
(a) if the entity is a resident of an
information exchange country:
(i) 15% for fund payments in relation to the income year
following the first income year starting on or after the first 1
July after the day on which the Tax Laws Amendment(Election
Commitments No. 1) Act 2008 receives the Royal Assent; or
(ii) 7.5% for fund payments in relation to later income
years; or
(b) Otherwise 30%.
The Explanatory Memorandum (at pages 8-9) gives a summary of the
key features of the proposed law in relation to the withholding tax
regime and the current law. For ease of reference this comparison
is set out in Attachment A to this Bills Digest.
In considering the meaning of fund payment in the Main
provisions section of this Bills Digest it was pointed out that
there is a requirement for trustees of Managed Investment Trust
(MITs) to make subjective judgments of expectations of the net
income of a trust and the expected amounts of later fund payments
in relation to an income year. This is likely to result in adding
to the compliance burdens of trustees as well as additional
administrative costs to the Australian Tax Office (ATO). The
Explanatory Memorandum states that the Government expects that the
new MIT withholding tax regime will impose compliance costs on MITs
and interposed entities for the first and second transitional years
as they will need to modify their systems to adjust to the new
withholding regime. However, it states that ongoing compliance
costs are expected to be minimal.[26]
The Regulation Impact Statement (RIS) contained in the
Explanatory Memorandum states that the consultation on the draft
legislation was possible for a limited period. Paragraph 1.316
states:
Consultation on the draft legislation commenced
following announcement of the measure in the 2008-09 Budget. As the
Government intends the measure to take effect from the 2008-09
income year, it was only possible to undertake consultation for a
limited period.[27]
The proposal was first publicly announced in the 2008 Budget on
13 May 2008 and the package of bills was introduced in the House of
Representatives on 4 June 2008. It would appear that the
consultation period was arguably inadequate to consider the full
implications of the implementation of the new final MIT withholding
tax regime. The Explanatory Memorandum notes that Treasury and the
ATO will monitor the new withholding tax regime, as part of the
whole taxation system, on an ongoing basis.[28]
The Treasurer in his
Budget Speech on 13 May 2008 proposed the most comprehensive
review of Australia s tax system since World War II , the object of
which was stated as follows:
We need a tax system that is fairer, that is
simpler, that better rewards people for their hard work, that
responds to our environmental and demographic challenges, that
makes us internationally competitive, and that creates the
incentives to invest in our productive capacity. One that supports
national prosperity beyond the mining boom.[29]
The new withholding tax
regime for MITs may be part of an overall review of the taxation of
trusts generally in the context of an entity tax regime to tax
companies, trusts and partnerships in the same way as
companies.
Extract from the Explanatory Memorandum - pages 8 and 9
Bernard Pulle, Barbara Harris and Paige Darby
18 June 2008
Bills Digest Service
Parliamentary Library
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