Conflicting announcements relating to the Managed Investment Trust (MIT) regime have created uncertainty. We explore the announced changes and the impact for foreign investors.
Need to know:
- Recent proposed legislative amendments and the introduction of Taxpayer Alert TA 2025/1 have resulted in significant uncertainty in relation to the MIT withholding regime to captive MITs.
- Given the rapidly evolving landscape, taxpayers are advised to remain updated and adopt informed stances based on robust advice.
The MIT withholding regime provides concessional withholding on fund payments from eligible MITs to recipients in information exchange countries. The withholding rate for eligible MITs can be as low as 10% (for fund payments from clean building MITs) and 15% (for other qualifying fund payments) and applies to Australian sourced income and gains (other than dividends, interest and royalties subject to non-resident withholding tax (NRWT)). Foreign income and gains are not subject to withholding.
In what must be a record time, the Assistant Treasurer announced legislative changes that apply from the date of the announcement, being 13 March 2025 – that “complement” the Commissioner Taxpayer Alert TA 2025/1 issued 7 March 2025.
What are the areas of concern?
TA 2025/1 (Taxpayer’s Alert) was aimed at arrangements that inappropriately seek to take advantage of the MIT withholding regime through the restructure of inward investment structures.
However, in paragraph 15 the Taxpayer’s Alert provided:
“15. We are also aware that there are existing MITs that were established for the making of new inbound investments into Australia (as opposed to a restructure) that are indirectly owned by a single foreign entity covered by subsection 275-20(4) of the ITAA 1997. The potential application of Part IVA of the ITAA 1936 may also be a relevant consideration for these structures. However, we will not apply our compliance resources to these structures if they were established prior to the publication of this alert unless there is material new investment or ownership change.”
That paragraph challenges current industry practice and the pooling requirement of the MIS regime.
Relevance of managed investment scheme (MIS) definition?
In order to qualify as a MIT one of the requirements is that the unit trust must be a managed investment scheme. Section 9 of the Corporations Act defines a MIS as:
“managed investment scheme” means:
(a) a scheme that has the following features:
(i) people contribute money or money’s worth as consideration to acquire rights ( interests ) to benefits produced by the scheme (whether the rights are actual, prospective or contingent and whether they are enforceable or not);
(ii) any of the contributions are to be pooled, or used in a common enterprise, to produce financial benefits, or benefits consisting of rights or interests in property, for the people (the members ) who hold interests in the scheme (whether as contributors to the scheme or as people who have acquired interests from holders);
(iii) the members do not have day-to-day control over the operation of the scheme (whether or not they have the right to be consulted or to give directions); or
(b) a time-sharing scheme;
but does not include the following:
…
(e) a scheme in which all the members are bodies corporate that are related to each other and to the body corporate that promotes the scheme;…”
A MIT that is ultimately owned by a single investor may fail the Corporations Act definition (and hence not meet the requirements of a MIT) either because (a) there is no pooling and/or (b) all the members/unitholders are related bodies corporate.
This concern prompted an immediate response. The Media Release from the Assistant Treasurer made the point that:
“The amendments will maintain current industry practice and understanding of the operation of the managed investment trust pooling requirements under Division 275 of the Income Tax Assessment Act 1997 and remove ambiguity around the use of MITs.
The amendments will make clear that trusts ultimately owned by a single widely‑held investor (e.g. a foreign pension fund) are able to access the MIT concessions.”
What comfort can foreign investors take from the announced changes?
There are several practical points that will assist any impacted MITs.
Firstly, the Taxpayer’s Alert stated that the ATO will not apply their compliance resources to these structures if they were established prior to the publication of the Taxpayer’s Alert (7 March 2025) unless there is a material new investment or ownership change. That is as good a guarantee as the ATO will give in the modern world of risk being categorised as red, yellow and green.
Secondly, the legislative changes – whatever they may be – will be applied retrospectively from 13 March 2025.
For MITs established between 7 and 13 March 2025 – that period is currently the twilight zone. It remains anopen question as to whether the changes should apply earlier, but that will be worked out in the detail of the legislative response.
Thirdly, retrospective announcements are not new and the existing ATO policy in relation to announced retrospective changes of law is that whilst the ATO won’t advise taxpayers to self-assess by anticipating that the announced change will become law, if taxpayers choose to do so, the ATO won’t apply resources to checking whether these self-assessments are correct (in accordance with the existing law).
There are a lot of questions that arise from the Taxpayer’s Alert and the Assistant Treasurer’s response, but in a world that is inherently uncertain, taxpayers cannot look for certainty but must adopt justified positions having taken proper advice.
Finally, a federal election needs to be held by 17 May 2025 (at least the Senate half election need to be held by then) and with the government usually in caretaker mode for six weeks before the election date, there is little time for the legislation to be enacted before 30 June 2025.Get in touch
Navigating the complexities of the MIT regime requires prompt adaptation to legislative amendments. Contact our tax team at Hamilton Locke for expert guidance tailored to your business needs.
For more information, please contact Mark Payne.
