Start date for new MIT regime deferred to 1 July 2012

The Assistant Treasurer, the Hon Bill Shorten MP, recently announced a 1-year deferral in the commencement date of the new MIT regime from 1 July 2011 to 1 July 2012. The deferral is the result of "overwhelming feedback" received during the consultation process that, while supportive of this positive reform, called for further time to ensure effective operation within the new MIT tax system.

While the deferral is not a surprise (as there have been no announcements from Treasury since the MIT Regime Discussion Paper was released late last year), Moore Stephens welcomes this announcement to ensure that the objectives of increased certainty, reduced complexity and lower costs for MIT's and their investors are realised.

We also commend the Federal Government on the two (2) following changes it will make to the MIT tax regime to achieve the above objectives:

• The introduction of legislative amendments to prevent any income tax consequences that may arise from a trust resettlement where a MIT changes its trust deed (or other constituent documents) to satisfy the "clearly defined rights" requirement of the new MIT tax system.
• The alternative test of the de minimus rule allowing MIT's to carry forward under and over distributions into the next income year without adverse taxation consequences will now be "0.4 of 1% of net assets" instead of "prescribed dollar value per unit".

The reason for this change was that this new alternative test is more equitable for MIT's with a similar net worth but a different number of units. The primary test of five (5) per cent of taxable income will remain unchanged.

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.

In the lead-up to the new start date of 1 July 2012, the Government will continue industry consultation on the implementation of the new MIT tax system and undertake public consultation on draft legislation to be released in the coming months. Mr Shorten acknowledged that there were "loose ends raised by stakeholders" and that he would be "conveying a roundtable with industry during the next few months to resolve these issues".

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