Explanatory Memorandum
(Circulated by the authority of the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)Chapter 4 - Extension of interim streaming provisions for managed investment trusts
Outline of chapter
4.1 Schedule 4 to this Bill amends Schedule 2 of the Tax Laws Amendment (2011 Measures No. 5) Act 2011 (TLA No. 5 2011) (the interim trust streaming provisions) to extend the exemption from the application of the interim trust streaming provisions for managed investment trusts (MITs) and other trusts that are treated in the same way as MITs for the purposes of Division 275 of the Income Tax Assessment Act 1997 (ITAA 1997). [1]
4.2 Schedule 4 to this Bill extends the current exemption to include the 2012-13 and 2013-14 income years. This ensures that the current interim arrangements continue to operate until the end of the 2013-14 income year. The new tax system for MITs (the new MIT regime) is scheduled to commence on 1 July 2014.
4.3 These amendments affect MITs that have not made an election to have the amendments contained in Schedule 2 of the TLA No. 5 2011 apply to them.
Context of amendments
4.4 Schedule 2of the TLA No. 5 2011 amended the ITAA 1997 and the Income Tax Assessment Act 1936 (ITAA 1936) to enable the 'streaming' of capital gains and franked dividends to beneficiaries, subject to relevant integrity provisions.
4.5 Part 3 of Schedule 2 of the TLA No. 5 2011 provided an exemption from the application of these amendments for MITs for the 2010-11 and 2011-12 income years. This was in recognition of the fact these types of trusts generally do not 'stream' income to their beneficiaries. However, the trustee of a MIT may elect to irrevocably apply the amendments contained in Schedule 2 of the TLA No. 5 2011.
4.6 The exemption was intended to operate until the new MIT regime commenced, originally scheduled for 1 July 2012. However, as part of the 2011-12 Mid-Year Economic and Fiscal Outlook, the start of the new MIT regime was deferred for 12 months, to allow more time for consultation with stakeholders and to provide industry with more time to change their business systems.
4.7 Further, in Media Release No. 080 of 2012, the Assistant Treasurer announced that the Government would progress the implementation of the new MIT regime in line with the update and rewrite of Division 6 of Part III of the ITAA 1936 and defer the commencement date of the new MIT regime to 1 July 2014.
4.8 Because the current exemption is intended to apply until the new MIT regime is introduced, the Government also announced it would extend the exemption until the announced commencement of the new MIT regime.
Summary of new law
4.9 This Schedule amends item 51 of TLA No. 5 2011 to allow the trustee of a MIT that has not made an election to apply the interim trust streaming provisions in relation to the 2010-11 or 2011-12 years to continue to disregard those provisions in the 2012-13 and 2013-14 income years, unless they choose to apply them. MITs that have previously made the election to apply the interim trust streaming provisions continue to apply those provisions for the 2012-13 and 2013-14 income years.
4.10 These amendments apply in relation to the 2012-13 and 2013-14 income years.
Comparison of key features of new law and current law
| New law | Current law |
| The interim trust streaming provisions do not apply to a MIT for the 2010-11to 2013-14 income years unless the trustee of the MIT elects, or has previously irrevocably elected, to apply those rules. | The interim trust streaming provisions do not apply to a MIT for the 2010-11 and 2011-12 income years unless the trustee of the MIT elects, or has previously irrevocably elected, to apply those rules. |
Detailed explanation of new law
4.11 A MIT is exempt from the application of the interim trust streaming provisions for the 2010-11 and 2011-12 income years unless the trustee of the MIT has made an irrevocable election to apply those rules. If a valid election was made in relation the 2010-11 income year, then that election also applies to the 2011-12 income year.
4.12 The amendments in this Schedule provide that MITs that have not made an election in the 2010-11 or 2011-12 income years to apply the interim trust streaming provisions can continue to disregard those provisions for the 2012-13 and 2013-14 income years. This ensures that the current tax treatment for MITs is maintained until the scheduled commencement of the new MIT regime. [Schedule 4, items 1 to 3]
4.13 MITs where the trustees have not previously made an election to apply the interim trust streaming provisions may do so in relation to the 2012-13 and 2013-14 income years. That election applies from the start of the income year in relation to which the election is made until the end of the 2013-14 income year. Consistent with the current provisions, the election must be made within two months after the end of the income year in relation to which the election is to apply.
Example 4.14
Celestia Managed Investments is a MIT. The trustee of Celestia Managed Investments did not elect to apply the amendments contained in Schedule 2 of TLA No. 5 2011 for the 2010-11, 2011-2012 or 2012-13 income years.
On 1 July 2013, the trustee of Celestia Managed Investments makes an election, in writing, to apply the amendments contained in Schedule 2 of TLA No. 5 2011 for the 2013-14 income year. Celestia Managed Investments is therefore subject to the amendments contained in that Schedule for the 2013-14 income year.
4.14 A MIT where the trustee has made an election in the 2010-11 or 2011-12 income years to apply the interim trust streaming provisions will continue to apply those provisions in the 2012-13 and 2013-14 income years.
Example 4.15
The Luna Trust is treated in the same way as a MIT for the purposes of Division 275 for the 2010-11 to 2013-14 income years. The trustee of the Luna Trust did not choose to apply the amendments contained in Schedule 2 of TLA No. 5 2011 for the 2010-11 income year.
On 1 July 2011, the trustee of the Luna Trust makes an election, in writing, to apply the amendments in Schedule 2 of TLA No. 5 2011 for the 2011-12 income year. The Luna Trust is therefore subject to the amendments contained in that Schedule for the 2011-12, 2012-13 and 2013-14 income years.
Application provisions
4.15 The amendments made by Schedule 4 to this Bill commence on Royal Assent and apply in relation to the 2012-13 and 2013-14 income years.
STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
Extension of interim streaming provisions for managed investment trusts
4.16 This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .
Overview
4.17 This Schedule provides that MITsand other trusts that are treated in the same way as managed investment trusts for the purposes of Division 275 of the ITAA 1997 may continue to disregard the interim trust streaming provisions for the 2012-13 and 2013-14 income years unless they have elected or elect to apply those rules. MITs that have previously made the election to apply the interim trust streaming provisions continue to apply those provisions in the 2012-13 and 2013-14 income years.
4.18 This amendment ensures that the current treatment of MITs continues until the commencement of the new tax system for MITs.
Human rights implications
4.19 This Schedule does not engage any of the applicable rights or freedoms.
Conclusion
4.20 This Schedule is compatible with human rights as it does not raise any human rights issues.
Assistant Treasurer, the Hon David Bradbury