Bills Digest No. 45,
2018–19
PDF version [771KB]
Andrew Maslaris
Economics Section
15 November 2018
Contents
Glossary of Key Terms
The Bills
Digest at a glance
Purpose of
the Bill
Commencement
Structure of
the Bill
Background
Committee
consideration
Policy
position of non-government parties/independents
Position of
major interest groups
Financial
implications
Statement of
Compatibility with Human Rights
Key issues
and provisions
Concluding
comments
Date introduced: 20
September 2018
House: House of
Representatives
Portfolio: Treasury
Commencement: Various
dates, as set out in this Digest.
Links: The links to the Bill,
its Explanatory Memorandum and second reading speech can be found on the
Bill’s home page, or through the Australian
Parliament website.
When Bills have been passed and have received Royal Assent, they
become Acts, which can be found at the Federal
Register of Legislation website.
All hyperlinks in this Bills Digest are correct as at
November 2018.
Glossary of
Key Terms
Attribution Managed Investment
Trust (AMIT): a special category of trust introduced in 2016 for the
purpose of simplifying the rules relating to the taxation of earnings by Managed
Investment Trusts (MITs). A trust can only be an AMIT where it is:
-
a MIT
-
the rights to the income and capital arising from each member’s interest in
the trust are clearly defined at all times when the trust is in existence in
the income year and
-
the trustee makes an election to apply the AMIT rules.[1]
Attribution Managed Investment
Trust Member Annual statement (AMMA Statement): issued on a yearly basis
to members and investors of AMIT’s, this statement details the amounts that
have been attributed to a member by an AMIT. This statement assists members and
investors in preparing their tax return.
Capital Gains Tax (CGT): a
specific set of tax rules relating to capital assets (for example, real estate
or shares). Capital gains tax is generally payable where the proceeds from an
asset’s disposal (for example, selling the asset) exceed the costs of acquiring
and maintaining it (known as the cost base). A capital loss occurs when the
cost base exceeds the proceeds from the asset’s sale. Capital gains are added
to an individual’s assessable income and taxed at the relevant marginal tax
rate. Where a taxpayer has a capital loss, it can only be applied against
capital gains—that is, it cannot be used to reduce tax paid on salary and wages
or similar earnings.
CGT discount: where an
individual has held an asset for 12 months or longer they are able to reduce
their capital gain by 50 per cent. Superannuation funds are also able to reduce
their capital gain, but only by 33.3 per cent. Importantly, the CGT discount is
not available to companies.
CGT events: a list of
events or transactions contained in the Income Tax
Assessment Act 1997 (ITAA 1997), that may give rise to a capital
gain or loss. The CGT events are broken up into 12 different categories,
represented by a letter, and each category has a number of sub-categories
represented by a number. For example, CGT event category A deals with disposal
of assets, category E with trusts, and category G with shares. The CGT events
can be highly technical and the way to calculate a capital gain or loss may
differ depending on the relevant event.
CGT event E4: where a
trustee makes a payment to a member of a trust in respect of their interest in
the trust, and a part of that payment includes an amount that is not
included in the member’s assessable income, CGT event E4 will occur—for example,
a capital gain will arise where that non-assessable payment is greater than the
cost base of the relevant membership interest. CGT event E4 has no application
to AMITs.
CGT event E10: a CGT
Event applying only to AMITs. It largely mirrors CGT event E4, and provides
that a capital gain or loss may arise where a member of the AMIT receives a payment
or distribution in relation to their membership interest that is not subject to
income tax.
Character of income: in
order to determine the amount of MIT income to be attributed to each member,
the AMIT rules require that the income produced by the AMIT is separated into
certain categories. For example, different categories could exist for earnings
from dividends, royalties, interest, franked distributions and proceeds from
the sale of assets. Each of these categories is referred to as a ‘character of
income’ in the legislation. The AMIT then matches its expenses against each
character of income, and the amount remaining for each character of income is
attributed evenly amongst members.
Cost base: the cost
base is a CGT concept that broadly refers to the value of a CGT asset when it
was acquired. Generally, the cost base will be the cost of an asset, plus other
costs associated with acquiring, holding and disposing of the asset. The AMIT
regime contains a complex set of rules to make adjustments to the value of the
cost base where a taxpayer receives non-assessable payments or distributions.
Determined member component: the
amount of income, separated into separate categories of income, that is
attributed to an AMIT or MIT member as reflected in their AMMA statement.
Determined trust component: the
net amount of each character of income calculated by the AMIT.
Exchange of information
agreement: an agreement entered into between Australia and another
country outlining in what circumstances each country can and will exchange
taxpayer information or information related to taxpayers (for example, bank
statements of an Australian taxpayer in another country). A list of
jurisdictions that Australia has a tax information exchange agreement with is
listed on the Treasury website.[2]
Fund payment: MIT withholding
tax is imposed on fund payments to non-residents. To ensure that MIT
withholding tax is only levied on Australian sourced MIT income that is not
subject to other withholding obligations, a fund payment is broadly defined as:
the amount of a member’s determined member component less any dividends,
interest, royalties, capital gains or losses from CGT assets that are not
Australian taxable property and amounts that are not Australian sourced income.
Income tax treaties: formal
bilateral agreements between two countries. Australia has tax treaties with
more than 40 countries. Also referred to as tax conventions or double tax
agreements (DTA), they prevent double taxation and foster cooperation between
Australia and other international tax authorities by enforcing their respective
tax laws. A list of jurisdictions that Australia has an income tax treaty with
is listed on the Treasury website.[3]
Information exchange country: this
refers to a country or jurisdiction with which Australia has an agreement
relating to the exchange of taxpayer information in place, whether it is in the
form of an income tax treaty or exchange of information agreement. Section 34
of the Taxation
Administration Regulations 2017 contains a list of jurisdictions that meet
this requirement.
Managed Investment Trust
(MIT): a type of trust in which members of the public collectively
invest in primarily passive income activities, such as investments in shares,
property or fixed interest assets. A trust will only be a MIT and receive the
associated tax benefits, where:
-
the trustee of the MIT is an Australian resident or the central
management and control of the MIT is in Australia
-
the MIT does not carry on or control an active trading business
-
the MIT is a managed investment scheme within the meaning of
section 9 of the Corporations
Act 2001
-
the MIT is a widely held trust that is not closely held[4]
and
-
the MIT is registered under the Corporations Act, or if a
wholesale MIT, the ITAA 1997.[5]
MIT membership interest:
the share or unit holding that a taxpayer has in a MIT.
MIT transitional rules:
a set of transitional rules that were introduced in 2016 so that taxpayers,
corporate unit trusts and public unit trading trusts were not disadvantaged while
they transitioned to the new MIT rules. The ATO website contains a detailed
overview of these rules.[6]
Restrictive Trade Practices: a
set of identified anti-competitive behaviours or practices outlined in Part IV
of the Competition
and Consumer Act 2010 (CCA).
Examples of these practices include misuse
of market power, cartel
conduct, exclusive
dealing, imposing
minimum resale prices, and collective
bargaining and boycotts.
Substituted accounting period:
generally, a tax year will run from 1 July to 30 June. However, the
Commissioner of Taxation may grant a taxpayer an alternative tax year period—this
is usually common with foreign headquartered companies who do not have a 1 July
to 30 June reporting period.
Withholding Tax: generally,
payments by an Australian resident to a non-resident will have an amount of tax
withheld where the payment is interest, an unfranked dividend, a royalty, or a
MIT fund payment. The relevant withholding tax rates are outlined in
Australia’s DTA’s. Where Australia does not have a DTA with the recipient’s country
of residence, the following default rates apply:
- 10
per cent for interest payments and
- 30
per cent for unfranked dividend and royalty payments.[7]
MIT Withholding Tax: in
2008 the Government introduced a new MIT withholding tax regime. Under the
former withholding tax regime, trustees of Australian MITs and certain
intermediaries (financially licensed custodians) were subject to a 30 per cent
non-final withholding tax on fund payments to non-residents. As the tax was a
non-final withholding tax, non-residents were required to lodge an Australian
tax return as well as being subject to the normal Australian income tax rules
on fund payments. The new MIT withholding regime introduced a final withholding
tax (currently 15 per cent) on fund payments and does not impose any additional
obligations, such as Australian income tax or a requirement to lodge an
Australian tax return.
This was part of the Government’s broader vision to make
Australia the financial services hub of Asia—reducing compliance costs for
foreign investors, and increasing the attractiveness of Australia’s managed
fund sector by having a more competitive rate of tax.
Unders and overs regime: special
rules allowing trustees of AMITs to make adjustments to a member’s yearly
distribution to take into account errors in previous years in calculating the
tax a member was required to pay—this allows an AMIT to quickly remedy when a
member is either over-taxed or under-taxed in a previous year without incurring
any additional penalty.
The Bills Digest at a glance
Overview
The Bill contains four Schedules that are unrelated and
independent of each other.
The main focus of the Bill is to clarify, and in some
instances, simplify the operation of the taxation rules relating to the AMIT regime.
Broadly, the AMIT regime is a set of special rules designed to ensure that
individuals and entities can invest in MITs without having to worry about
complex tax laws. An important element of the AMIT regime is the requirement on
trustees of MITs to issue an AMMA Statement clearly setting out the tax
obligations of each investor.
Schedule 1 of the Bill makes a number of technical
amendments to the AMIT regime. These amendments seek to address a number of
issues raised by industry and stakeholders by clarifying how key provisions of
the AMIT regime operate and by addressing unintended consequences. The main
focus of these changes is to ensure that the AMIT rules continue to deliver
certain tax outcomes for investors.
Schedules 2 and 3 of the Bill contain
amendments to extend Deductible Gift Recipient (DGR) status to six new entities,[8]
as well as entities that have the principal purpose of promoting Indigenous
languages.
Schedule 4 of the Bill adopts recommendations of
the Productivity Commission and the Competition Policy Review to repeal subsection
51(3) of the CCA. This provision currently allows the holders of
intellectual property (IP) rights to impose conditions on the assignment or
licensing of their IP which amount to a restrictive trade practice. Removing the
exemption in the CCA will bring Australia into line with the United
States, Canada and Europe.
Key issues
Although the purpose of the AMIT regime is to simplify and
streamline the tax treatment of MITs and reduce compliance costs, the amendments
fail to remove much of this complexity. As noted by PWC in relation to the 2016
reforms:
While the proposed new regime goes some way to addressing the
difficulties in applying the current trust tax law provisions to managed
investment trusts, the proposed rules are complex and feature a range of new
obligations and potential penalties that must be carefully considered. [9]
The amendments in the Bill do clarify, and in some
instances, simplify the operation of the AMIT rules.[10]
Nonetheless, the legislation remains highly complex—in large part due to the
legislative drafting style.
The Financial Services Council raised some concerns about
whether the current start dates of the new rules allow sufficient time for
industry to implement the proposed changes, as the new AMIT rules may commence
prior to the 2018–19 income year.[11]
These concerns do not appear to have been addressed in the Bill.
Purpose of
the Bill
The primary purpose of the Treasury Laws Amendment (2018
Measures No. 5) Bill 2018 (the Bill) is to amend laws relating to MITs to clarify
their tax treatment and provide greater certainty to investors.[12]
The Bill also amends the:
- ITAA 1997 to add six additional charities to the list of
eligible DGRs
- ITAA 1997 to extend DGR status to entities that have the
principal purpose of promoting Indigenous languages and
- CCA to remove an exemption which currently allows holders
of IP to impose conditions on the licensing or assignment of IP rights that
would otherwise amount to a restrictive trade practice.
Commencement
-
Sections 1 to 3 commence on Royal Assent
-
Schedules 1 and 2 commence on the first 1 January, 1 April, 1
July or 1 October to occur after Royal Assent
-
Schedule 3 commences on 1 July 2019 and
-
Schedule 4 commences six months after Royal Assent.
Structure
of the Bill
The Bill consists of four Schedules:
- Schedule 1 makes a number of amendments to various tax
laws to clarify the taxation treatment of MITs and AMITs
- Schedule 2 of the Bill amends the ITAA 1997 to
include six new entities as DGR entities
- Schedule 3 amends the ITAA 1997 to extend the type
of entities included in the register of cultural organisations to include
entities that have the principal purpose of promoting Indigenous languages and
- Schedule 4 amends the CCA so that conditional
licensing or assignment of IP rights, such as patents, registered designs,
copyright and eligible circuit layout rights are no longer exempt from being
restrictive trade practices.
Background
Schedule 1—Managed Investment
Trusts
Schedule 1 of the Bill makes technical amendments to the
MIT and AMIT rules in order to ensure that these regimes operate as intended.
The amendments also seek to provide industry with increased investment
certainty and assist entities in deciding whether to opt-in to the AMIT regime.[13]
What is a Managed Investment Trust?
Broadly, a MIT is a type of trust in which members of the
public collectively invest in primarily passive income activities, such as investments
in shares, property or fixed interest assets.[14]
MITs are attractive to investors as they present an opportunity
to pool capital with other investors, enabling investment in larger and more
diversified assets than would otherwise be the case.[15]
Further, there are a number of tax advantages associated with the MIT regime,
discussed in more detail below.
For a trust to qualify as a MIT, section 275-10 of the ITAA
1997 requires the following conditions to be satisfied:
-
the trustee of the MIT is an Australian resident or the central
management and control of the MIT is in Australia
-
the MIT does not carry on or control an active trading business
-
the MIT is a managed investment scheme within the meaning of
section 9 of the Corporations Act
-
the MIT is a widely held trust that is not closely held[16]
and
-
the MIT is registered under the Corporations Act, or if a
wholesale MIT,[17]
the ITAA 1997.[18]
Why do special rules apply for
Managed Investment Trusts?
On 7 May 2010, the then Assistant Treasurer, Senator Nick
Sherry announced the Rudd Government would put
in place a new tax system for MITs for commencement on 1 July 2011.[19] These reforms were part
of the Government’s commitment to make Australia the financial services hub of
Asia,[20]
and followed a decision in 2008 to reduce the level of withholding tax imposed
on certain MIT distributions to foreign residents from 30 per cent to 7.5 per
cent.[21]
At the time of introducing
these new rules, Australia had the fourth largest onshore managed funds market
in the world.[22]
However, as the taxation rules applying to managed funds were highly complex
and uncertain, the Government considered that introducing a new set of rules
that removed complexity and uncertainty, would enhance the international competiveness of Australia’s managed funds sector and
reduce compliance costs.[23]
It should be noted that the
MIT withholding tax rate imposed on distributions to foreign residents
was increased to 15 per cent from 1 July 2012 for non-residents located in a country
with an exchange of information agreement with Australia—there is a 30
per cent MIT withholding rate applying to MIT distributions to a non-resident
located in a country with no exchange of information agreement with
Australia.[24]
Subsequent Government Announcement
On 19 July 2017, the then Minister for Revenue and
Financial Services, Kelly O’Dwyer announced
that in response to concerns identified by industry, further changes would be
made to improve Australia’s financial services taxation regime.[25]
These included, amongst other things, an announcement that amendments would be
made to the AMIT rules to ensure they operated as intended.
The Government released exposure
draft legislation in respect of the AMIT amendments on 18 June 2018,
with consultation closing on 16 July 2018.
Taxation of Managed Investment
Trusts
Managed investment trusts and their members are generally
taxed under the trust provisions in Division 6 of Part III of the Income Tax
Assessment Act 1936 (ITAA 1936), unless the trustee makes an
election to apply the AMIT rules.
One of the key purposes of the MIT regime is to make tax
outcomes for investors more certain and less complex. The MIT regime seeks to
simplify the tax outcomes for investors, and reduce compliance costs through
the following core rules and principles:
-
The trustee of an eligible MIT can make an irrevocable election
to become an AMIT, which provides members and beneficiaries with a simpler
alternative to the existing taxation rules.[26]
Further, the rules are also far more flexible, allowing trustees of AMITs to
make adjustments to amounts of tax that members must pay where there has been
an error made in previous years (known as the unders and overs regime).[27]
-
Gains or losses from the disposal of certain assets that are attributed
or paid to investors can be taxed under the CGT rules.[28]
This means that investors can apply the capital gains discount to these
amounts, thereby reducing their tax paid. These rules are known as the capital
treatment election.[29]
-
Withholding taxes are payable in relation to amounts of
dividends, interests, or royalties (DIR) that are attributed or paid to a foreign
resident. These taxes are collected by imposing a withholding obligation on the
MIT trustee. Withholding tax is imposed in line with the withholding tax rates
under relevant tax treaties.
-
A specific MIT withholding tax on amounts of Australian sourced
income, other than DIR, that are attributed or paid to foreign investors.[30]
The MIT withholding tax ‘switches off’ the requirement to pay Australian income
tax on these amounts – thereby offering a lower rate of tax (15% for residents
of countries that have an exchange of information agreement in place with
Australia, and 30% for all other residents).[31]
Where an election to apply the AMIT rules is not made, the
general rules relating to the taxation of trusts contained in Division 6 of Part
III of the ITAA 1936 apply. These rules are highly complex, and are a
major reason why the AMIT regime was created.
Who is eligible to be an AMIT?
In order to be eligible to apply the AMIT rules, a MIT
must satisfy the conditions outlined in section 276-10 of the ITAA 1997.
Broadly, the following requirements must be satisfied:
-
the trust is a managed investment trust in relation to
the income year
- the rights to income and capital arising from each membership
interest in the trust are clearly defined at all times when the trust is
in existence in the income year[32]
-
if the trust is a MIT only because its members are MITs or
widely-held entities that are listed under subsection 275-20(4) of the ITAA
1997, then its members must only be MITs and
-
the trustee of the MIT has made an election to apply the AMIT
rules.
What is the AMIT regime?
The Tax Laws Amendment
(New Tax System for Managed Investment Trusts) Act 2016 introduced the
AMIT rules with effect from 1 July 2016. Under these rules, the trustee of a
MIT can make an irrevocable election to be an AMIT for tax purposes.
The Explanatory
Memorandum to the Tax Laws Amendment (New Tax System for Managed Investment
Trusts) Bill 2015 (2015 Bill), states that the AMIT rules provide the following
benefits to investors:
-
The trust will be treated as a fixed trust for income tax
purposes. This means that amongst other things, members will be considered to
have a vested and indefeasible interest in a share of the income and capital of
the AMIT.[33]
-
Income or profits derived or received by the MIT that are
attributed to members retain the same tax character they had in the hands of
the trustee for income tax purposes. Therefore amounts of capital earned by the
MIT will be treated as capital (and able to be discounted under the CGT rules)
in the hands of members.[34]
-
Reduction of double taxation by allowing members to adjust their membership
cost base to recognise differences between amounts received by a member and
amounts included in their assessable income.[35]
-
A new capital gains event ‘AMIT
non-assessable payments (CGT event E10)’ to recognise that members may have
a capital gain or loss in respect of the receipt of non-assessable payments.[36]
-
An unders and overs system that allows a trustee to make
adjustments to amounts attributed to members where incorrect amounts were included
in members’ assessable income in previous years. Such variances are highly
likely when calculating member attribution amounts, as the trustee may not have
complete information at the time of preparing and issuing the AMMA Statement.[37]
The unders and overs system largely codified the prevailing industry practice
for reconciling these variances.[38]
How does the attribution model of
taxation operate?
As noted above, prior to the AMIT rules being introduced,
beneficiaries or members of trusts had to include in their assessable income,
the share of trust income to which they were presently entitled.[39]
As explained by the Board of Taxation, in the context of a MIT, the concept of
net present entitlement was particularly problematic:
A problem with the use of present entitlement in the context
of MITs is where an MIT sells assets to obtain funding for redemptions of units
(that is, to pay out beneficiaries withdrawing from the trust). Whilst a gain
on the disposal of the assets may be in whole or in part the source of the
redemption payment, there is an issue as to whether the redeeming unit holder
can be characterised as a beneficiary presently entitled to the income of the
trust estate in respect of the relevant year of income. If they cannot be so
characterised, then the liability for tax payable on the gain (whether it be
revenue or capital in nature), would fall on the trustee and/or ongoing
beneficiaries. This may lead to MITs increasing the end of year distributions
to match the gain which Division 6 includes in the assessable income of the
ongoing beneficiaries.[40]
As discussed below, the AMIT regime seeks to address these
concerns by adopting a simplified and more streamlined approach to taxation of
MITs and their members, as well as the introduction of an unders and overs
system to make adjustments for incorrect amounts of tax paid in previous years.
Taxation outcomes for AMIT members—attributed
amounts
Under the AMIT model of taxation, members are taxed on
amounts attributed to them by the trustee of an AMIT.[41]
A key objective of these rules is to tax a member in broadly the same way they would
have been taxed if they had held the assets of the AMIT directly.[42]
Unlike the trust rules contained in Division 6 of Part III
of the ITAA 1936, members are not distributed or attributed a net share
of trust income. Rather, the AMIT is required to:
-
split its earnings and income into specific classes or categories
of income—for example, income may be broken up into earnings from dividends,
royalties, interest, franked distributions and proceeds from the sale of assets
-
the AMIT then ‘matches’ the expenses it has incurred to each
category of income
-
the final amount remaining of each category of income is known as
the determined trust component and
-
the determined trust component is then attributed evenly
amongst all members of the AMIT (the total of this attributed amount is known
as the determined member component).[43]
This is illustrated below in the following simplified
example:
Example
one
An AMIT earns $100 of interest income and a further $200 from
the sale of shares. The AMIT had interest expenses of $80 ($30 of these
expenses were incurred in earning the interest income and $50 in buying the shares)
and commission expenses of $20 in relation to the shares income. The AMIT calculates
the following amounts to be attributed equally amongst its members:
- Interest income $70 ($100 less $30) and
- Shares income $130 ($200 less $50 less $20).
Importantly, subsection 276-80(2) of the ITAA 1997
provides that a member of the trust is treated as deriving, receiving or
making a determined member component in the member’s own right, meaning it
receives the same tax treatment as the AMIT. This means that for tax purposes, the
determined member component retains the same tax characteristics for the member
as it did for the AMIT. For example, if an AMIT treats the sale of assets as a
capital gain, it will also be a capital gain in the member’s hands and capable
of being reduced by the CGT discount.
When calculating a determined member component, the
trustee of the AMIT may not have complete information about the amount of
income it has earned from other AMITs.[44]
In order to deal with this situation, subdivision 276-F of the ITAA 1997
contains special rules, known as unders and overs, which allow the
trustee to make adjustments in later years to determined member components,
where amounts attributed in previous years were not correct. As stated in the
Explanatory Memorandum to the 2015 Bill:
... an attribution MIT will often have incomplete or interim
information at the time it needs to work out the trust components of particular
characters for an income year where it holds units in other attribution MITs
and has not received AMMA statements from those other attribution MITs for that
income year. In these circumstances, the trustee has no alternative but to
work out trust components of particular characters based on estimated amounts
of those components.[45]
[Emphasis added].
Taxation outcomes for AMIT members—capital
gains event E10
Members of AMITs are required to make annual adjustments
to the cost base of their membership interests. These adjustments are done in
order to reflect increases or decreases in the value of the membership interest,
for example, where a MIT reinvests some of a fund payment into the MIT.
The ATO Law Companion Ruling LCR
2015/11 Attribution Managed Investment Trusts: annual cost base adjustments for
units in an AMIT and associated transitional rules summarises when
upward and downward adjustments occur:
CGT event E10 downwards adjustments reflect, broadly
speaking, actual payments received by the member. Upwards adjustments are,
broadly speaking, equal to the sum of amounts included in the member's
assessable income (or otherwise as a relevant capital gain) and non-assessable
non-exempt income in respect of the AMIT. The downwards and upwards adjustments
are netted off against each year to arrive at a net cost base adjustment
amount, which is the amount by which the cost base of the member's interest in
the AMIT is adjusted.[46]
-
Under section 104-107C of the ITAA 1997, the
difference between the cost base increase amount and the cost base reduction
amount will be the AMIT cost base net amount—this will either be:
-
a shortfall where the cost base reduction amount falls
short of the cost base increase amount.[47]
In this case, the cost base must be increased by the shortfall amount[48]
and
-
an excess where the cost base reduction amount exceeds the
cost base increase amount.[49]
In this case, the cost base must be reduced by the excess amount.[50]
Where the reduced cost base amount exceeds the existing
cost base of the membership interest, CGT event E10 will happen.[51]
As discussed below, the Bill contains technical amendments to make CGT event
E10 operate as intended.
Taxation outcomes for non-resident
AMIT members—withholding taxes
Generally, non-residents will not be subject to Australian
income tax on amounts attributed to them by an AMIT.[52]
Rather, where an AMIT satisfies the definition of a withholding MIT,
an amount of withholding tax will be applied to payments made to non-residents.
A MIT will generally be a withholding MIT where a
substantial proportion of its investment management activities relate to
Australian assets, taxable Australian property, or shares, units or interests
listed on the Australian Stock Exchange.[53]
Broadly, withholding taxes apply to:
-
payments of dividends, interest or royalty amounts to
non-residents—withholding tax rates are set in line with the existing DTAs.
Payments of royalties and dividends to residents of countries with no DTA will
attract withholding taxes of 30 per cent and payments of interest to residents
of countries with no DTA will attract withholding taxes of ten per cent and
- fund payments to non-residents, excluding payments
of dividends, interest or royalties (known as MIT withholding tax).[54]
- Where a withholding MIT makes a fund payment to a
non-resident,[55]
the following withholding tax rates currently apply:
-
where the address or place for payment of the recipient is in an
information exchange country:
-
10% for fund payments made after 1 July 2012 that are
attributable to fund payments from a clean building managed investment trust[56]
and
-
15% for all other fund payments made after 1 July 2012.
-
In all other cases the withholding rate is 30 per cent.[57]
Taxation outcomes for AMIT trustees
Broadly, a trustee of an AMIT will be required to pay tax
on amounts of income that are not attributed to members or taxed at the member
level.[58]
This ensures that all income of the AMIT is subject to taxation, and broadly
aligns with the rules in Division 6 of Part III of the ITAA 1936 which
require trustees to pay tax on amounts that are not distributed to
beneficiaries.
In the context of an AMIT, this scenario will most
commonly arise where a trustee does not attribute an amount to members or the
trustee incorrectly calculates the attribution amount leading to a shortfall or
an ‘under’. The trustee will be subject to tax at the highest marginal tax rate.
However, shortfall amounts will be reduced to the extent that they have been reflected
in an ‘under’ that has been attributed to a member.[59]
Schedule 2—Deductible Gift
Recipients
The income tax law provides that taxpayers may claim
deductions in respect of gifts or donations of $2 or more made to a DGR. One of
the rationales for this is that DGR status helps organisations attract public
financial support for their activities.[60]
Division 30 of the ITAA 1997 contains the categories
of entities and specifically listed entities that have DGR status. Where an
organisation does not fall within the general categories provided for in the ITAA
1997, the ATO is unable to approve the entity as a DGR. Accordingly, a
legislative amendment to the ITAA 1997 is required in order to
specifically list those organisations as DGRs.
Schedule 2 to the Bill amends the ITAA 1997
to provide DGR status to six new entities, described below:
- Australian Sports Foundation Charitable Fund—a registered
charity established to support projects where sport is the vehicle to achieve
charitable aims
- Australian Women Donors Network—a registered charity
established to provide a voice for gender inclusive philanthropy across all
focus areas including education, health, disability, youth and the arts
- Paul Ramsay Foundation Limited—a registered charity
established to be the recipient of the Ramsay bequest from the Paul Ramsay
Foundation to pursue one or more of the following charitable purposes in
Australia: advancing health, advancing education and advancing social or public
welfare
- The Q Foundation Trust—a registered charity with the
principal purpose of advancing education and engagement in science and
technology in Australia
- Smile Like Drake Foundation Limited—a registered charity
that supports research into preventing drowning and provides water safety
education programs for schools and
- Victorian Pride Centre Ltd—a registered charity
established to own and operate a centre in the State of Victoria to facilitate
and host support services, facilities and resources for the lesbian, gay, bisexual,
transgender, and/or intersex community.[61]
Schedule 3—Extending DGR status to
entities promoting Indigenous languages
As noted above, the income tax law provides that taxpayers
may claim deductions in respect of gifts or donations of $2 or more that are
made to a DGR entity. One of the categories under which an entity can be
granted DGR status is the ‘cultural organisation’.[62]
As noted in the Explanatory Memorandum, the definition of cultural organisation
includes organisations that have the principal purpose of promoting the arts of
Indigenous persons but it does not include organisations that have the
principal purpose of promoting languages of Indigenous persons.[63]
Schedule 3 of the Bill amends the ITAA 1997 so
that cultural organisations include organisations that have as a principal
purpose, amongst other things, the promotion of the languages of Indigenous
persons.
This delivers on a commitment made by the Government in
the 2017–18 Mid-Year Economic and Fiscal Outlook.[64]
Schedule 4—Repeal of subsection
51(3) of the CCA
Part IV of the CCA outlines a range of prohibited
behaviours and practices that constitute restrictive trade practices. Currently,
subsection 51(3) of the CCA contains an exception to some of the prohibited
behaviours in respect of conditional licensing or assignment of intellectual
property rights.
Schedule 4 removes this exception in line with
recommendations of the Productivity Commission and the Competition Policy
Review and brings Australia in line with other countries such as the United
States, Canada and Europe.[65]
Therefore, as a result of this amendment, the transfer or
assignment of intellectual property rights will be assessed under competition
laws in the same manner as other commercial transactions.
Committee
consideration
Senate Standing Committee for the
Scrutiny of Bills
The Senate Standing Committee for the Scrutiny of Bills had
no comment on the Bill.[66]
Senate
Standing Committee for the Selection of Bills
The Senate Standing Committee for the Selection of Bills
recommended that the Bill not be referred to a committee for inquiry.[67]
Policy
position of non-government parties/independents
The Australian Labor Party (ALP) supported the Bill’s
passage through the House of Representatives on 18 October 2018. [68]
At the time of writing, no comments from other parties or independent members
of Parliament have been identified.
Position of
major interest groups
The Government has not released the submissions received
from Treasury consultation.[69]
However, the Financial Services Council (FSC) has made its submission in
relation to draft amendments publically available.[70]
The FSC’s main contention is that the Bill does not
deliver on the Government’s commitment to consult on amendments to address
issues relating to residency that arise under the Investment Manager Regime.[71]
This appears to relate to a press release, ‘Improving
Australia’s financial services regime’ issued by the then Minister for
Revenue and Financial Services, Kelly O’Dwyer on 19 July 2017.[72]
The FSC submission also raises a number of other technical
issues including:
-
That the commencement date be changed from the 2017–18 income
year to the income year commencing after the Bill receives Royal Assent, so as
to allow sufficient time for industry to implement the changes.[73]
-
Concerns that the amendments to Tax File Number (TFN) withholding
rules will not be effective in respect of deemed payments, as there is no
payment to withhold an amount from, and trustees should be indemnified by
investors who have not quoted their TFN.[74]
Item 20 of Schedule 1 to the Bill appears to directly address this issue
by allowing the trustee to offset these amounts against debts or amounts owing
to the member.
-
A number of technical drafting errors with proposed subitem
75(3A) of Schedule 5 to the Tax Laws Amendment
(New Tax System for Managed Investment Trusts) Act 2016 (TLAA
2016) (as contained in the exposure draft)—these appear to have been subsequently
addressed in the Bill through proposed amendments to subitem 75(2) of
Schedule 5 to the TLAA 2016 by item 37 of Schedule 1
to the Bill.[75]
-
A change to the drafting of proposed paragraph 75(4)(c) of
Schedule 5 to the TLAA 2016 (as contained in the exposure draft) to
ensure trusts with substituted accounting periods are able to distribute
franking credits—this appears to have been subsequently addressed in the Bill
(see item 41 of Schedule 1 to the Bill).[76]
-
The FSC also raised a number of technical drafting errors which
appear to have been addressed in the Bill.[77]
Financial
implications
Schedule 1—AMIT technical
amendments
The Explanatory Memorandum does not state what the
financial impact of the proposed measure in Schedule 1 to the Bill will
be, rather the Explanatory Memorandum states:
This legislation contains technical amendments reflecting the
policy intent of the 2015-16 MYEFO measure Managed investment trusts –
adjustments to the new tax system. This measure was estimated to have an
unquantifiable cost to revenue.[78]
Schedule 2—Deductible Gift
Recipients
The Explanatory Memorandum relies on the financial impact
contained in the 2018–19 Budget, which ‘was estimated to be $0.6m over the forward
estimates period to 2021–22’.[79]
Schedule 3—Extending DGR status to
entities promoting Indigenous languages
The Explanatory Memorandum relies on the financial impact
contained in the 2017–18 Mid-Year Economic and Fiscal Outlook and states
that the ‘measure was estimated to have a negligible cost to revenue over the
then forward estimates period’.[80]
Schedule 4—Repeal of subsection
51(3) of the CCA
The proposed measure contained in Schedule 4 to the
Bill is expected to have no financial impact.[81]
The compliance cost impact is ‘expected to be low’.[82]
Statement of Compatibility with Human Rights
As required under Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed
the Bill’s compatibility with the human rights and freedoms recognised or
declared in the international instruments listed in section 3 of that Act. The
Government considers that the Bill is compatible.[83]
Parliamentary
Joint Committee on Human Rights
The Parliamentary Joint Committee on Human Rights
considered that the Bill does not raise any human rights concerns.[84]
Key issues and provisions
Schedule 1
– AMIT technical amendments
While Schedule 1 to the Bill is
not divided into legislative Parts, the Explanatory Memorandum broadly
categorises the changes made by the Schedule into four parts:
-
Part 1 makes a number of technical amendments to the MIT and AMIT
rules, including:
-
amending the ITAA 1997 to clarify which entities are
eligible to be MITs
-
extending the MIT rules to provide that the Future Fund and its
wholly owned entities are eligible investors and
-
making a number of amendments to ensure that MIT trustees and
unitholders are correctly taxed on discount capital gains
-
Part 2 amends the ITAA 1997 to ensure that Capital Gains
Tax event E10 operates as intended
-
Part 3 makes modifications to the ITAA 1997 and TAA to
clarify how the withholding tax rules apply to MITs and AMITs and
-
Part 4 extends the transitional MIT rules contained in the TLAA
2016 for a further 12 months and ensures that trusts with substituted
accounting periods can access these rules.[85]
Part 1—Technical amendments to the
MIT and AMIT rules
The main focus of part 1, being items 7 to 9,
11 and 17 of Schedule 1 to the Bill, is to make a range of
technical amendments to rules around which entities can access the AMIT regime.
Extending who is eligible to be a
MIT member
Proposed paragraph 275-20(4)(ia) and
proposed subsection 275-20(4A) of the ITAA 1997 (at items 7
and 8 of Schedule 1 to the Bill) expressly state that the Future
Fund Board of Guardians and its wholly owned entities are now eligible to be
investors in MITs. The Future Fund is Australia’s sovereign wealth fund ‘established
in 2006 to strengthen the Australian Government’s long-term financial position’.[86]
The Future Fund Board is responsible for deciding how to invest the Future Fund
in accordance with the Future Fund Act
2006.[87]
Item 9 repeals paragraph 276-10(1)(c) of the
ITAA 1997 which broadly provides that a MIT can access the AMIT regime
where its members are all specified widely-held entities (for example, a
life-insurance company or complying superannuation fund) listed under paragraph
275-20(4) of the ITAA 1997. The Explanatory Memorandum states that
‘[t]his requirement is unnecessarily restrictive and was unintended.’[88]
As a result this amendment ensures that MITs that have a single unitholder that
is a specified widely-held entity listed in section 275-45 can access the AMIT
regime.[89]
Discount capital gains changes
Schedule 1 to the Bill also makes modifications to
the ‘unders and overs’ regime. Broadly, item 10 repeals subsections
276-315(4) and (5) of the ITAA 1997, the effect of which is that any
shortfall amounts relating to discounted capital gains remain discounted in the
hands of the MIT member.
Item 11 amends subsection 276-415(4) of the ITAA
1997 so as to ensure that for the purposes of calculating shortfalls on
discounted capital gains, any discount capital gains for determined member
components are not grossed up. The Explanatory Memorandum states that this
ensures that where the relevant character is a discount capital gain, the
amount of the determined member component will not be doubled and will remain
the discounted amount.[90]
Part 2—Technical amendments to the
MIT and AMIT CGT rules
This Part makes amendments to, and seeks to clarify the
operation of, CGT events E4 and E10.
MITs: CGT event E4
Where a trustee makes a payment to a member of a trust in
respect of their interest in the trust, and a part of that payment includes an
amount that is not included in the member’s assessable income, CGT event
E4 will occur where that non-assessable part is greater than the cost base of
the relevant membership interest. Item 2 inserts proposed subsection
104-71(6) of the ITAA 1997 to clarify the operation of CGT event E4
by making it clear that where that payment has been offset against a capital
loss, the capital loss amount is not excluded from the non-assessable amount of
the payment. That is, in determining the amount of the non-assessable payment,
the payment can be reduced by any capital losses applied by the MIT. This also
aligns the tax treatment of MITs with the comparable CGT event E10 for AMITs.[91]
AMITs: CGT event
E10
Items 3 to 5 modify the operation of CGT event
E10 in section 104-107A of the ITAA 1997.
Where a member of an AMIT receives non-assessable payments
from the AMIT, the cost base (or reduced cost base) of the asset needs to be
adjusted.[92]
This reflects changes in the value of the member’s interest in the AMIT. Where the
net amount of the adjustments is greater than the asset’s costs base, the
asset’s cost base will be reduced to nil and any remaining excess will give
rise to a capital gain as a result of CGT event E10.[93]
However, currently where the cost base of the asset is nil at the start of the
income year, the cost base cannot be reduced which prevents CGT event E10 from
occurring.
These amendments seek to modify the law to make it clear
that where a member’s membership interest is nil, CGT event E10 can still
occur, with the capital gain being the amount the cost base adjustment exceeds
the cost base amount. Further, proposed subsection 104-107A(2) of
the ITAA 1997 will deem the CGT event to occur in the year the cost base
would have been reduced, if the cost base were not nil.
Therefore, items 3 to 5 address a drafting
issue with the section 104-107A of the ITAA 1997 which prevents CGT
event E10 from occurring where the cost base of the asset is $0 at the start of
the income year.
Part
3—Technical amendments to the MIT and AMIT withholding tax rules
Withholding provisions: deemed
payments and actual payments
Items 12 and 14 make modifications to paragraphs
840-805(2)(b) and 840-805(3)(b) of the ITAA 1997 to
clarify that the MIT withholding rules apply to deemed payments as well as actual
payments made by an AMIT which are attributable to foreign resident members.
Item 13 adds a proposed note to subsection
840-805(2) of the ITAA 1997 which clarifies that a fund payment
may not actually reflect the actual amount paid to a member. Further, item 15
adds a proposed note to subsection 840-805(3) of the ITAA 1997
clarifying that the MIT withholding rules apply to payments to members made
by custodians on behalf of the MIT.
Item 19 inserts a proposed note in subsection
12-140(1) of Schedule 1 to the TAA 1953 to clarify that deemed payments
are treated as having been paid for the purposes of the withholding tax
provisions.
Items 31 to 33 amend section
12A-215(1) of Schedule 1 to the TAA to clarify that all AMITs
(regardless of whether they are a withholding MIT) have a withholding
obligation in respect of any deemed payments made in relation to dividends,
interest or royalties.
Tax File Number withholding
provisions
Items 20 and 21 deal with amendments to the
TFN withholding rules.
Proposed subsection 12-140(3) of Schedule 1
to the TAA provides the trustee with the ability to set off any TFN
withholding amounts which the trustee of the AMIT was required to pay on behalf
of a member, against any debts due by the AMIT to the member. This appears to
address concerns raised by the FSC that the trustee of an AMIT should not be
liable for TFN withholding liability where the member fails to provide their
TFN.[94]
Proposed section 12-152 of Schedule 1
to the TAA also contains an amendment to ensure that TFN withholding tax
cannot be imposed on a payment more than once.[95]
Withholding tax on deemed payments
Items 23 and 24 amend the definition of a
MIT and AMIT for withholding purposes, so as to clarify that an AMIT that only
makes deemed payments (that is, no actual cash distributions) can be a
withholding AMIT,[96]
and that an AMIT that only makes deemed payments to foreign residents can also
be a withholding AMIT.[97]
Withholding tax on AMIT and MIT
fund payments
Items 25 to 30 contain a range of technical
amendments in relation to calculating an amount of withholding tax on taxable
Australian property gains for MITs and AMITs. Broadly, these items amend subsections
12-405(2) (relating to MITs) and 12A-110(3) (relating to AMITs) of Schedule
1 to the TAA. The purpose of these provisions is to ensure
that fund payments for the purposes of applying the MIT withholding tax amounts
do not include dividends, interest, royalties, capital gains or losses, or
amounts that are not from an Australian source.[98]
Items 25 to 30 also modify the method
statements in subsections 12-405(2) and 12A-110(3) of Schedule 1 to the TAA
so as that in determining the fund payment, capital gains from taxable
Australian property are not reduced or offset by capital losses from
non-taxable Australian property. As stated in the Explanatory Memorandum:
This ensures that, where a fund payment is made to a foreign
resident member, the amount of withholding tax payable by the MIT or AMIT is
calculated on taxable Australian property net capital gains. [99]
Part 4—Technical
amendments to the AMIT transitional rules
Items 34 to 46 make a number of technical
amendments to the AMIT transitional rules contained in Schedule 5 of the TLAA
2016. The AMIT transitional rules were introduced as part of the AMIT rules
introduced in 2016 and among other things provided:
-
that corporate unit trusts or public trading trusts that ceased
to be corporate tax entities as a result of amendments made to Divisions 6B and
6C of Part III of the ITAA 1936, could nonetheless continue to treat distributions
as frankable distributions and utilise accumulated franking credits until 30
June 2018[100]
and
-
transitional tax treatment for pre-exiting MITs.[101]
Items 35 to 42 effectively extend the
transitional rules for entities which, as a result of the AMIT reforms, ceased
to be corporate unit trusts or public trading trusts, to allow them to continue
to treat distributions as frankable distributions until 1 July 2019.
Items 18 and 43 to 45 extend the
application of the transitional rules to apply to corporate unit trusts and
public trading trusts with substituted accounting periods—as a result, the
transitional rules are no longer limited to entities that have income years
starting on 1 July.
Application
The amendments made by:
- item 2 apply to distributions made in relation to the
2017-18 income year or later[102]
- item 9 apply in relation to the 2017-18 income year and
later income years[103]
- item 18 and items 43 to 45 apply in relation
to the 2016-17 income year and later income years[104]
and
-
any other items of Schedule 1 to the Bill apply in
relation to the 2018-19 income year and later income years.[105]
Schedule 2—Deductible Gift Recipients
Schedule 2 of the Bill amends the ITAA 1997
to provide DGR status to six new entities. The proposed changes are summarised
in table 1: summary of changes to proposed DGR listings.
Table 1: summary of changes to proposed DGR listings
Entity |
Proposed period of DGR status |
Proposed provisions of the ITAA 1997 |
Australian Sports Foundation Charitable Fund |
After 30 June 2018 and before 1 July 2023 |
Proposed table item 10.2.9 in section 30-90 |
Australian Women Donors Network |
After 8 March 2018 and before 9 March 2023 |
Proposed table item 11.2.11 in section 30-95 |
Paul Ramsay Foundation Limited |
After 30 June 2018 and before 1 July 2020 |
Proposed table item 13.2.24 in section
30-105. |
The Q Foundation Trust |
After 31 December 2017 and before 1 January 2023 |
Proposed table item 2.2.46 in subsection
30-25(2) |
Smile Like Drake Foundation Limited |
After 8 March 2018 and before 9 March 2023 |
Proposed table item 2.2.45 in subsection
30-25(2) |
Victorian Pride Centre Ltd |
After 8 March 2018 and before 9 March 2023 |
Proposed table item 4.2.44 in subsection
30-45(2) |
Source: Parliamentary Library.
Schedule 2 of the Bill also makes minor consequential
amendments to the table contained in section 30-315 of the ITAA 1997
which is an index of the specifically listed DGR entities and general categories.[106]
Schedule
3—Extending DGR status to entities promoting Indigenous languages
Item 1 of Schedule 3 to the Bill amends subsection
30-300(2) of the ITAA 1997, by omitting the words ‘arts of’ and
replacing it with the words ‘arts or languages of’. As a result, section 30-300
of the ITAA 1997 will now define a cultural organisation as a body
corporate, trust or unincorporated body established for a public purpose by the
Commonwealth, a state or territory, that amongst other things, ‘has its principal
purpose as promoting the literature, music, a performing art, a visual art, a
craft, design, film, video,
television, radio, community arts, arts or languages of Indigenous persons, or
movable cultural heritage’.[107]
The Explanatory Memorandum states that the term ‘languages
of Indigenous persons are intended to refer to the traditional or historical
languages of those persons’.[108]
Schedule 3 to the Bill commences on 1 July 2019.[109]
Schedule
4—Repeal of subsection 51(3) of the CCA
Item 1 of Schedule 4 repeals subsection
51(3) of the CCA and item 3 of Schedule 4 repeals subsection
51(3) of Schedule 1 to the CCA. As stated in the Explanatory Memorandum,
Schedule 1 to the CCA is the Competition Code and ‘is applied as a law
by the states and territories’.[110]
This means that there will no longer be an exemption from the application of
Part IV of the CCA regarding the prohibition on restrictive trade
practices, ‘for conditional licensing or assignment of IP rights such as
patents, registered designs, copyright or eligible circuit layout rights’.[111]
Application
Item 2 of Schedule 4 creates proposed Division 4 in Part XIII
of the CCA, which contains proposed section 186. It clarifies that the
amendment to subsection 51(3) of the CCA applies to a licence granted,
an assignment made, or a contract, arrangement or understanding entered into
before, on or after the commencement of Schedule 4 to the Bill.[112]
Schedule 4 to the Bill
commences six months after the Bill receives Royal Assent.[113]
According to the Explanatory Memorandum:
The delayed commencement will give individuals and businesses
time to review existing arrangements to ensure they comply with the competition
provisions of the CCA. If necessary, they can apply to the Australian
Competition and Consumer Commission for authorisation of their existing
arrangements under Part VII of the CCA.[114]
However, proposed section 186 does not apply to the extent
that it would result in an acquisition of property (within the meaning of section
51(xxxi) of the Constitution)
from a person otherwise than on just terms.[115]
Concluding comments
The majority of the changes contained in this Bill are of
a technical and uncontroversial nature.
However, it does not appear that the FSC’s concerns in
relation to the start dates for the new rules have been addressed. As such,
there may be a question as to whether there will be sufficient time for
taxpayers to design and implement systems to respond to the new rules.
[1]. See
generally, section 275-10 of the Income Tax
Assessment Act 1997 (ITAA 1997).
[2]. Australian
Government, ‘Tax
Information Exchange Agreements’, Treasury website.
[3]. Australian
Government, ‘Income
Tax Treaties’, Treasury website.
[4]. Sections
275-20 and 275-25 of the ITAA 1997 contain the rules relating to when a
MIT will be a widely held trust and section 275-30 of the ITAA 1997
contain the rules relating to when a MIT will not be closely held. Broadly, to
be widely held, the MIT must have a minimum number of members (50 for a
registered retail MIT and 25 for a wholesale MIT) or be specifically listed as
a widely held entity under section 275-20 of the ITAA 1997.
[5]. Subdivision
275-A of the ITAA 1997 contains the rules relating to the definition of
a managed trust.
[6]. Australian
Taxation Office, ‘Transitional
provisions’, ATO website, last updated 16 August 2018.
[7]. Australian
Taxation Office, ‘Withholding
rate’, ATO website, last updated 29 June 2018.
[8]. The
six new entities are the Australian Sports Foundation Charitable Fund, Australian
Women’s Donors Network, Paul Ramsay Foundation Limited, The Q Foundation Trust,
Smile Like Drake Foundation Limited and Victorian Pride Centre Ltd.
[9]. PWC,
Draft
legislation for the Managed Investment Trust Regime released – what will it
mean for the Real Estate industry?, PWC webpage, 9 April 2015.
[10]. For
instance, item 9 of Schedule 1 repeals paragraph 276-10(1)(c),
which currently requires reference to eight sections in order to determine
whether a specifically listed MIT with only MIT members is an eligible AMIT.
[11]. Item
2 of the Bill states that Schedule 1 will apply from the first of 1
January, 1 April, 1 July or 1 October after the day the Act receives Royal
Assent.
[12]. S
Irons, ‘Second
reading speech: Treasury Laws Amendment (2018 Measures No. 5) Bill 2018’,
House of Representatives, Debates, (proof), 17 October 2018, p. 101.
[13]. Ibid.
[14]. Australian
Taxation Office (ATO), ‘Managed
investment trusts – overview’, ATO website,
last updated 16 August 2018.
[15]. The
Board of Taxation (BOT), Review of the
tax arrangements applying to Managed Investment Trusts: a report to the
Assistant Treasurer, August 2009, p. 4, fn., 4.
[16]. Broadly,
a MIT will be widely held, if it has a minimum number of members (50 for a
registered retail MIT and 25 for a wholesale MIT) or be specifically listed as
widely held entity under section 275-20 of the ITAA 1997.
[17]. Broadly,
a wholesale managed fund is designed to cater for professional investors with
significantly higher minimum investment amounts. See for example, ANZ website
states that the initial minimum investment in a wholesale fund is $500,000.
(ANZ, ‘Wholesale
managed investments’, ANZ website.)
[18]. ITAA
1997, section 275-10.
[19]. N
Sherry (Assistant Treasurer), New
tax system for managed investment trusts, media release, 7 May 2010.
[20]. BOT,
Review
of the Tax Arrangements Applying to Managed Investment Trusts: discussion paper,
October 2008, p. 1.
[21]. W
Swan (Treasurer) and C Bowen (Assistant Treasurer and Minister for Competition
Policy and Consumer Affairs), Establishing
Australia as a regional financial hub, joint media release, 13 May
2008.
[22]. BOT,
Review
of the Tax Arrangements Applying to Managed Investment Trusts: discussion paper,
op. cit., p. 7.
[23]. Ibid.,
p. 1.
[24]. Australian
Taxation Office (ATO), ‘Withholding
tax arrangements for managed investment trust fund payments’, ATO website, last updated 26 October 2016.
[25]. K
O’Dwyer, (Minister for Revenue and Financial Services), Improving
Australia’s financial services regime, media release, 19 July
2017.
[26]. See
generally Division 276 of the ITAA 1997.
[27]. ITAA
1997, subdivision 276-F.
[28]. Ibid.,
section 275-105 generally defines relevant assets to include shares
in a company, non-share equity interests in a company, a unit in a unit trust,
land (including an interest in land) , and a right or option to acquire any of
the above.
[29]. The
rules relating to this election are contained in Subdivision 275-B of the ITAA
1997.
[30]. Taxation
Administration Act 1953 (TAA), Schedule 1, sections 12-385 and 12-390.
[31]. The
specific withholding rates are detailed in sections 12-385 and 12-390 of
Schedule 1 to the TAA.
[32]. Section
276-15 of the ITAA 1997 defines ‘clearly defined interests’ to
generally mean that the trust is registered under the Corporations Act 2001
as a managed investment scheme and that the rights to income and capital
arising for each membership interest for each class of member is the same.
[33]. Explanatory
Memorandum, Tax Laws Amendment (New Tax System for Managed Investment
Trusts) Bill 2015, p. 25.
[34]. Ibid.,
p. 119.
[35]. Ibid.,
pp. 119–20.
[36]. Ibid.,
pp. 136–7; ATO, ‘AMIT
non-assessable payments (CGT event E10)’, ATO website, last updated 17 July
2017.
[37]. Ibid.,
p. 46.
[38]. Ibid.
[39]. A
beneficiary is required to include in their assessable income the share of net
income of the trust estate to which they are presently entitled. Present
entitlement is not a defined concept, however, section 95A(2) of the ITAA
1936 will deem a beneficiary to have a present entitlement if
they have vested and indefeasible interest in the income of the trust estate.
[40]. BOT,
Review
of the Tax Arrangements Applying to Managed Investment Trusts: discussion paper,
op. cit., p. 22.
[41]. The
trustee will issue members with an AMMA
statement outlining amounts that have been attributed to them under the
AMIT rules.
[42]. Explanatory
Memorandum, Tax Laws Amendment (New Tax System for Managed Investment
Trusts) Bill 2015, p. 119.
[43]. Division
276 of the ITAA 1997 contains the provisions relevant to determining the
amount of tax payable by a member of an AMIT.
[44]. Explanatory
Memorandum, Tax Laws Amendment (New Tax System for Managed Investment
Trusts) Bill 2015, p. 46.
[45]. Ibid.
[46]. ATO,
LCR
2015/11 Attribution Managed Investment Trusts: annual cost base adjustments for
units in an AMIT and associated transitional rules, ATO website, Law
Companion Ruling, 2015, p. 3.
[47]. ITAA
1997, subsection 104-107C(b).
[48]. Ibid.,
subsection 104-107B(3).
[49]. Ibid.,
subsection 104-107C(a).
[50]. Ibid.,
subsection 104-107B(2).
[51]. ITAA
1997, section 104-107A.
[52]. Ibid.,
section 276-105.
[53]. TAA,
Schedule 1, section 12-383.
[54]. Ibid.,
Schedule 1, section 12-375; section 12-405 defines a fund payment
to include the net income of the trust for the income year disregarding
dividends, interest, royalties, capital gains or losses from CGT assets that
are not Australian taxable property and amounts not from an Australian source.
[55]. For
the purposes of section 12-410 of Schedule 1 to the TAA, this will
include any payments authorised to a place outside Australia or payments to
recipients who have an address outside of Australia. However, payments that are
made to, and attributable to, a permanent establishment are not included (a
permanent establishment broadly refers to a business operation carried on by a
non-resident, or a branch operated by a non-resident, through a fixed place of
business in another country—a permanent establishment will be treated as a
resident for Australian tax purposes).
[56]. A
clean building managed investment trust is broadly a MIT that holds only energy
efficient commercial buildings constructed on or after 1 July 2012.
[57]. TAA,
Schedule 1, sections 12-385 and 12-390.
[58]. For
a more detailed explanation, see: ATO, ‘AMIT
trustee taxation’, last updated 16 August
2018.
[59]. ITAA
1997, section 276-420; Income Tax Rates
Act 1986, subsection 12(13).
[60]. Explanatory
Memorandum, Treasury Laws Amendment (2018 Measures No. 5) Bill 2018, p. 23.
[61]. Ibid.,
pp. 23–4.
[62]. ITAA
1997, sections 30-100 and 30-300.
[63]. Explanatory
Memorandum, Treasury Laws Amendment (2018 Measures No. 5) Bill 2018, p. 29.
[64]. Australian
Government, Mid-year
economic and fiscal outlook 2017–18, appendix A: policy decisions taken since
the 2017-18 budget, p. 111–2.
[65]. Explanatory
Memorandum, Treasury Laws Amendment (2018 Measures No. 5) Bill 2018, pp.
31–2; Productivity Commission, Intellectual
property arrangements: inquiry report, 23 September 2016, p. 37; I
Harper, P Anderson, S McCluskey and M O’Bryan, Competition
policy review: final report, March 2015, p. 42.
[66]. Senate
Standing Committee for the Scrutiny of Bills, Scrutiny
digest, 12, 2018, The Senate, Canberra, 17 October 2018, p. 62.
[67]. Senate
Standing Committee for the Selection of Bills, Report,
12, 2018, The Senate, Canberra, 18 October 2018, p. 3.
[68]. A
Leigh, ‘Second
reading speech: Treasury Laws Amendment (2018 Measures No. 5) Bill 2018’,
House of Representatives, Debates, (proof), 17 October 2018, p. 97.
[69]. The
Treasury (Treasury), ‘Attribution Managed
Investment Trusts (AMIT) – Technical Amendments’,
Treasury website,
18 June 2018.
[70]. Financial
Services Council (FSC), Submission
to Treasury, Attribution Managed Investment Trusts (AMIT) – Technical
Amendments, 16 July 2018.
[71]. Ibid.,
p. 2.
[72]. K
O’Dwyer, (Minister for Revenue and Financial Services), Improving
Australia’s financial services regime, media release, 19 July
2017.
[73]. FSC,
Submission
to Treasury, Attribution Managed Investment Trusts (AMIT) – Technical
Amendments, op. cit., p. 2.
[74]. Ibid.,
pp. 2–3.
[75]. Ibid.,
p. 5.
[76]. Ibid.
[77]. Ibid.,
pp. 3–5, where the FSC raised concerns relating to proposed subsection
12-405(2A) of Schedule 1 to the TAA (at item 28 of Schedule
1 to the Bill) and proposed paragraph 12A-110(3)(b) of
Schedule 1 to the TAA (at item 29 of Schedule 1 to
the Bill).
[78]. Explanatory
Memorandum, Treasury Laws Amendment (2018 Measures No. 5) Bill 2018, p. 3.
[79]. Ibid.,
p. 4.
[80]. Ibid.
[81]. Ibid.,
p 5.
[82]. Ibid.
[83]. The
Statement of Compatibility with Human Rights can be found at pages 33 to 37 of
the Explanatory Memorandum to the Bill.
[84]. Parliamentary
Joint Committee on Human Rights, Human
rights scrutiny report, 11, 2018, The Senate, 16 October 2018, p. 72.
[85]. Explanatory
Memorandum, Treasury Laws Amendment (2018 Measures No. 5) Bill 2018, pp.
8–9, 11.
[86]. futurefund,
‘Our funds’,
futurefund website; Future
Fund Act 2006, section 35. Item 17 of Schedule 1 to the
Bill inserts a definition of Future Fund Board into subsection
995-1(1) of the ITAA 1997.
[87]. Future Fund Act
2006, section 35.
[88]. Explanatory
Memorandum, Treasury Laws Amendment (2018 Measures No. 5) Bill 2018, p. 11.
[89]. Ibid.,
p. 12.
[90]. Ibid.
[91]. Ibid.,
p. 14.
[92]. Ibid.,
p. 13; ATO, ‘AMIT
non-assessable payments (CGT event E10)’, ATO website, last updated 17 July
2017.
[93]. Ibid.
[94]. FSC,
Submission
to Treasury, Attribution Managed Investment Trusts (AMIT) – Technical
Amendments, op. cit., p. 2-3.
[95]. Broadly,
this refers to the situation where a deemed payment has been subject to TFN
withholding tax, and a subsequent actual payment is made—only the component of
that actual payment that does not relate to the deemed payment will be subject
to the TFN withholding tax.
[96]. TAA,
Schedule 1, proposed paragraph 12-383(a).
[97]. Ibid.,
Schedule 1, proposed subsection 12-383(2).
[98]. Ibid.,
Schedule 1, subsection 12-405(1).
[99]. Explanatory
Memorandum, Treasury Laws Amendment (2018 Measures No. 5) Bill 2018, p. 17.
[100]. Explanatory
Memorandum, Tax Laws Amendment (New Tax System for Managed Investment
Trusts) Bill 2015, pp. 157–9; Tax Laws Amendment
(New Tax System for Managed Investment Trusts) Act 2016 (TLAA
2016), Schedule 5, item 75.
[101]. Explanatory
Memorandum, Tax Laws Amendment (New Tax System for Managed Investment
Trusts) Bill 2015, pp. 8–9.
[102]. Subitem
46(1) of Schedule 1 to the Bill.
[103]. Subitem
46(2) of Schedule 1 to the Bill.
[104]. Subitem
46(3) of Schedule 1 to the Bill.
[105]. Subitem
46(4) of Schedule 1 to the Bill.
[106]. Items
6 to 10 of Schedule 2 to the Bill.
[107]. Indigenous
person is defined in section 995-1 of the ITAA 1997 as an
individual who is a member of the
Aboriginal race of Australia; or a
descendant of an Indigenous inhabitant of the Torres Strait Islands.
[108]. Explanatory
Memorandum, Treasury Laws Amendment (2018 Measures No. 5) Bill 2018, p. 30.
[109]. Proposed
item 4 of the table in subclause 2(1) of the Bill.
[110]. Explanatory
Memorandum, Treasury Laws Amendment (2018 Measures No. 5) Bill 2018, p. 32
[111]. Ibid.,
p. 31.
[112]. Proposed
subsections 186(1) and (2) of the CCA.
[113]. Proposed
table item 5 in subclause 2(1) of the Bill.
[114]. Explanatory
Memorandum, Treasury Laws Amendment (2018 Measures No. 5) Bill 2018, p. 32.
[115]. Proposed
subsection 186(4) of the CCA; the Constitution,
section 51(xxxi).
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