Managed Investment Trusts (MITs) have an extra year to get ready for the new MIT tax system after the Federal Government announced this week it will defer the start date of the new laws from 1 July 2011 to 1 July 2012.
In announcing the deferral, the Assistant Treasurer and Minister for Financial Services and Superannuation, Bill Shorten, said "Deferring the start date by 12months will provide MITs, and other parts of the financial services industry, with sufficient time to make any necessary trust deed amendments and systems changes to operate effectively within the new MIT tax system."
"Unlike Mr Hockey, who earlier this week had a very damaging thought bubble on how trusts should be taxed, this Government is taking the taxation arrangements for trusts seriously."
The Government will also introduce amendments to the tax law to prevent any income tax consequences that might arise from a resettlement where a MIT changes its trust deed (or other constituent documents) to meet the 'clearly defined rights" requirement under the new MIT tax system.
"These amendments will ensure MITs needing to amend their trust deeds, to be eligible for the attribution method of determining tax liabilities and deemed fixed trust treatment, are not deterred by income tax consequences from making the necessary amendments," the Assistant Treasurer said.
The Government will also make a minor change to the proposed de minimis rule allowing MITs to carry forward under and over distributions into the next income year without adverse taxation consequences. This change will replace the alternative test of the de minimis threshold of a 'prescribed dollar value per unit' with a '0.4 of 1 per cent of net assets' test. The primary test of five per cent of the MIT"s taxable income will be unchanged.
"The proposed 'percentage of net assets' test is superior to the 'prescribed dollar value per unit' test because it will operate more equitably for MITs with a similar net worth but a different number of units. The test will provide an appropriate alternative test in years of low returns, when the primary test could be unintentionally restrictive," the Assistant Treasurer said.
The Government is committed to implementing a new tax system for MITs that will increase certainty, reduce complexity and lower compliance costs for MITs and their investors. The Government will continue to consult with industry on the implementation of the new MIT tax system and plans to undertake public consultation on draft legislation in the coming months.