Start date for new MIT regime deferred again … to 1 July 2013

One of the tax measures in the mid-year economic and fiscal outlook announced earlier this week by the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP, is the further deferral of the new Managed Investment Trust (MIT) regime to 1 July 2013 to allow "more time for consultation with stakeholders about how to best implement the elements of the package".  This does not seem to have received a lot of attention compared to the furore over some of the other tax measures, such as the Fringe Benefits Tax (FBT) reform for Living Away From Home Allowances (LAFHA).

While we welcomed the announcement in April this year by the Assistant Treasurer, the Hon Bill Shorten MP, to defer the start date of the MIT regime from 1 July 2011 to 1 July 2012 to ensure that the objective of increased certainty is realised, it is disappointing that we are in a position that has required the legislation to be deferred again.  We acknowledge that the deferral of the legislation is the best outcome at this point in time as Treasury is having difficulty drafting legislation to take into account the concerns of industry.   However, the further deferral of this regime does not support the Government's aim of improving the international competitiveness of the Australian funds management industry and its commitment to making Australia the financial services hub of Asia.

One of the primary barriers for Australian fund managers in attracting foreign investment has been the uncertainty of the Australian tax legislation.  While these concerns have been addressed to some degree with the introduction of measures such as the MIT capital account election, the further deferral of this regime means that there is still an element of uncertainty in the current Australian tax rules which may be sufficient for foreign investors to look elsewhere.

By way of background, the key aspects of the new MIT tax system are:

• An elective 'attribution' system of taxation to replace the present entitlement system, so that investors are only taxed on the income the trustee allocates to them on a fair and reasonable basis, consistent with their entitlements under the trust's constituent documents.
• The establishment of a carry-over facility to deal with 'unders' and 'overs' within a 5% cap so trustees are not required to reissue tax statements and investors are not required to amend their income tax returns.
• The removal of double taxation that may arise where the taxable income of a MIT differs from the amount distributed to beneficiaries
• The abolition of Division 6B of the Income Tax Assessment Act 1936, which relates to corporate unit trusts.

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