Industry applauds tax reforms of MITs
Reform of the tax system for managed investment trusts (MITs) announced on Friday will simplify the administration of managed funds, according to Federal Assistant Treasurer Nick Sherry.
The reforms, which have largely been applauded by the financial services industry, were announced following recommendations made by the Board of Taxation.
“Many millions of Australians are investors in MITs, either directly or indirectly through their retirement savings,” Sherry said.
“As such, much turns on the tax treatment of MITs and we feel that the current tax rules are complex, uncertain and unsustainable in the modern economy.”
Sherry said an example of the need for reform lies in that fact that trust beneficiaries currently might be taxed on amounts, such as capital gains, that they are not entitled to receive and trustees might be taxed on capital gains that they have already distributed to investors.
Deloitte approved of the changes and tax partner Adele Watson said the new rules have clarified two critical areas for the sector.
“The first affirms that MITs can distribute taxable net income if they have an accounting loss for instance, which will remove the uncertainty of additional tax being imposed on the trustee,” Watson said.
“The other clarification is that the Government has accepted into tax legislation a longstanding industry practice of carrying forward over and under distributions of trust income components to the next year, subject to certain caps.”
Watson said managers, however, must act quickly if distributions fall outside the caps.
The Investment and Financial Services Association (IFSA) congratulated the Government and the Board of Taxation for taking steps to “bring greater certainty to tax laws”.
IFSA chief executive John Brogden said the new rules address a longstanding deficiency in tax legislation, which he said is the failure to update the trust rules for modern investment vehicles such as unit trusts.
“The implicit recognition of the importance that unit trusts play in the Australian financial sector to streamline investments from all sources gives the industry confidence in the Government’s ability to develop sound policy and respond to future administrative needs as they develop,” Brogden said.
“The changes mean that there will now be greater administrative efficiency for superannuation funds, pension funds, institutions and non-resident investors.”
The new rules will commence on 1 July 2011.
Some 38 of the Board of Taxation’s recommendations have been accepted, while the Government has deferred the rest pending further consultation with the industry.
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