The Assistant Treasurer and Minister for Competition Policy and Consumer Affairs, Chris Bowen MP, introduced into Parliament today amendments to the eligible investment business rules in Division 6C of the Income Tax Assessment Act 1936.
The measure is included in Tax Laws Amendment (2008 Measures No. 5) Bill 2008.
“This measure forms a key part of the Rudd Government’s election commitment to make Australia a funds management hub in the Asia-pacific region,” Mr Bowen said
“The changes are an interim step pending the outcome of the Board of Taxation review of the tax arrangements applying to managed funds.
“The Government has undertaken extensive consultation with industry and key stakeholders on the design of this measure, both prior to its announcement in the 2008‑09 Budget and on the draft legislation.”
Widely held public unit trusts that limit their activities to eligible investment business as defined in the Division 6C rules are able to retain trust taxation treatment. Otherwise, these trusts are public trading trusts and taxed like companies. Eligible investment business is defined as investing in land primarily for the purpose of deriving rent; and/or investing or trading in certain financial instruments.
“The current eligible investment business rules are complex and uncertain, imposing compliance costs on Australian managed funds, which may impede the industry’s international competitiveness.” Mr Bowen said.
The amendments to Division 6C will:
- clarify the scope and meaning of investing in land for the purpose of deriving rent;
- introduce a 25 per cent safe harbour allowance for non-rental income from investments in land for rent;
- expand the range of financial instruments that a managed fund may invest in or trade; and
- provide a two per cent safe harbour allowance at the whole of trust level for other non-trading income.
“These amendments will make it easier for managed funds to comply with the law and reduce the scope for such trusts to breach Division 6C inadvertently, thus lowering compliance costs for industry, the Australian Taxation Office and investors,” Mr Bowen said
“The Government has been mindful not to pre-empt the Board of Taxation review and therefore more significant policy changes have not been contemplated at this time.”
25 September 2008