Tax Laws Amendment (2010 Measures No. 1) Act 2010 (56 of 2010)

Schedule 3   Managed investment trusts

Income Tax Assessment Act 1997

4   After Part 3-10

Insert:

Part 3-25 - Particular kinds of trusts

Division 275 Australian managed investment trusts

Table of Subdivisions

Guide to Division 275

275-A Extended concept of managed investment trust for the purposes of this Division

275-B Choice for capital treatment of managed investment trust gains and losses

275-C Carried interests in managed investment trusts

Guide to Division 275

275-1 What this Division is about

The trustee of certain Australian managed investment trusts may make a choice that certain assets of the trust be dealt with under CGT rules. If the trustee does not make such a choice, those assets will be treated as revenue assets (see Subdivision 275-B).

Gains and profits from carried interests held in entities that are or were Australian managed investment trusts are included in the assessable income of the holder of the interests. The holder is entitled to a deduction from losses from such interests (see Subdivision 275-C).

Subdivision 275-A - Extended concept of managed investment trust for the purposes of this Division

Table of sections

275-5 Trust operated or managed by a financial services licensee etc.

275-10 Managed investment schemes that are not subject to requirement to be operated by financial services licensee

275-15 Every member of trust is a managed investment trust

275-20 No fund payment made in relation to the income year

275-25 Trust held by small group not to be treated as managed investment trust

275-30 Temporary circumstances outside the control of the trustee

275-35 Application of subsections 102L(15) and 102T(16)

275-15 Every member of trust is a managed investment trust

(1) For the purposes of this Division, treat a trust in the same way as a *managed investment trust in relation to an income year if:

(a) the condition in item 1 of the table in subsection 12-400(1) in Schedule 1 to the Taxation Administration Act 1953 is satisfied; and

(b) every *member of the trust is a managed investment trust in relation to the income year (or a trust that is treated in the same way as a managed investment trust in relation to the income year through the operation of this Subdivision).

(2) A requirement in paragraph (1)(a) is satisfied if, and only if, it is satisfied:

(a) at the time the trustee of the trust makes the first *fund payment in relation to the income year; or

(b) if the trustee does not make such a payment in relation to the income year - at both the start and the end of the income year.

275-20 No fund payment made in relation to the income year

For the purposes of this Division, treat a trust in the same way as a *managed investment trust in relation to an income year if:

(a) the trustee of the trust does not make a *fund payment in relation to the income year; and

(b) the trust would be a managed investment trust in relation to the income year (or a trust that would be treated in the same way as a managed investment trust in relation to the income year through the operation of this Subdivision) if the trustee of the trust had made the first fund payment in relation to the income year on the first day of the income year; and

(c) the trust would be a managed investment trust in relation to the income year (or a trust that would be treated in the same way as a managed investment trust in relation to the income year through the operation of this Subdivision) if the trustee of the trust had made the first fund payment in relation to the income year on the last day of the income year.

275-30 Temporary circumstances outside the control of the trustee

If, apart from a particular circumstance, a trust would be treated under this Subdivision in the same way as a *managed investment trust in relation to an income year, treat the trust in the same way as a managed investment trust in relation to the income year for the purposes of this Division if:

(a) the circumstance is temporary; and

(b) the circumstance arose outside the control of the trustee of the trust; and

(c) it is fair and reasonable to treat the trust as a managed investment trust in relation to the income year, having regard to the following matters:

(i) the matters in paragraphs (a) and (b);

(ii) the nature of the circumstance;

(iii) the actions (if any) taken by the trustee of the trust to address or remove the circumstance, and the speed with which such actions are taken;

(iv) the extent to which treating the trust as a managed investment trust in relation to the income year would increase or reduce the amount of tax otherwise payable by the trustee, the beneficiaries of the trust or any other entity;

(v) any other relevant matter.

275-35 Application of subsections 102L(15) and 102T(16)

To avoid doubt, subsections 102L(15) and 102T(16) of the Income Tax Assessment Act 1936 do not apply for the purposes of this Division.

Subdivision 275-B - Choice for capital treatment of managed investment trust gains and losses

Table of sections

275-100 Consequences of making choice - CGT to be primary code for calculating MIT gains or losses

275-105 Covered assets

275-110 MIT not to be corporate unit trust or trading trust

275-115 MIT CGT choices

275-120 Consequences of not making choice - revenue account treatment

275-100 Consequences of making choice - CGT to be primary code for calculating MIT gains or losses

(1) The modifications in subsection (2) apply if:

(a) a *CGT event happens at a time involving a *CGT asset; and

(b) the CGT asset is owned at that time by an entity that is a *managed investment trust in relation to the income year in which the time occurs; and

(c) the CGT event happens because the managed investment trust *disposes of, ceases to own or otherwise realises the asset; and

(d) the asset is covered by section 275-105; and

(e) the entity meets the requirement in section 275-110 at the time; and

(f) a choice under section 275-115 covering the entity is in force for the income year in which the time occurs.

(2) These provisions do not apply to the *CGT event:

(a) sections 6-5 (about *ordinary income), 8-1 (about amounts you can deduct), and 15-15 and 25-40 (about profit-making undertakings or plans);

(b) sections 25A and 52 of the Income Tax Assessment Act 1936 (about profit-making undertakings or schemes);

(c) section 118-20 (about reducing capital gains if amount otherwise assessable);

(d) Division 70 and section 118-25 (about trading stock).

General exceptions

(3) The provisions referred to in subsection (2) can apply to the *CGT event if a *capital gain or *capital loss from the event is disregarded because of one of the provisions in this table:

Trading stock and profit-making undertakings or plans involving land etc.

(4) The provisions referred to in subsection (2) can also apply to the *CGT event if:

(a) where the *CGT asset is land (including an interest in land), or a right or option to *acquire or *dispose of land (including an interest in land):

(i) the CGT asset is *trading stock; or

(ii) the circumstances existing at the time of the event would, disregarding this Subdivision, give rise to an amount being included in the assessable income of the entity under section 15-15 or to a deduction for the entity under section 25-40 (about profit-making undertakings or plans); or

(b) where paragraph (a) does not apply:

(i) the *managed investment trust acquired the CGT asset in an income year for which the choice mentioned in paragraph (1)(f) was not in force; and

(ii) the CGT asset was treated as trading stock in the managed investment trust's financial report for the most recent income year ending before the start of the income year in which that choice first came into force; and

(iii) the CGT asset was treated as trading stock in the *income tax return for the managed investment trust for the most recent income year ending before the start of the income year in which that choice first came into force; and

(iv) the CGT asset was treated as trading stock in the managed investment trust's financial report for the most recent income year ending before the time of the event; and

(v) the CGT asset was treated as trading stock in the income tax return for the managed investment trust for the most recent income year ending before the time of the event.

Treatment of outgoings to acquire trading stock

(5) The modifications in subsection (6) apply if:

(a) an entity that is a *managed investment trust in relation to the income year *acquires a *CGT asset at a time in that income year; and

(b) the CGT asset is an item of *trading stock; and

(c) the CGT asset is not land (including an interest in land), or a right or option to acquire or *dispose of land (including an interest in land); and

(d) the entity incurs an outgoing in connection with acquiring the asset; and

(e) the asset is covered by section 275-105; and

(f) the entity meets the requirement in section 275-110 at the time; and

(g) a choice under section 275-115 covering the entity is in force for the income year in which the time occurs.

(6) The modifications are as follows:

(a) section 8-1 (about amounts you can deduct) does not apply to the *acquisition;

(b) Division 70 (about trading stock) does not apply in relation to the asset in respect of:

(i) the income year in which the time occurs; and

(ii) any later income year in relation to which the entity is a *managed investment trust and throughout which the entity meets the requirement in section 275-110.

275-105 Covered assets

(1) An asset is covered by this section if it is any of the following:

(a) a *share in a company (including a share in a *foreign hybrid company);

(b) a *non-share equity interest in a company;

(c) a unit in a unit trust;

(d) land (including an interest in land);

(e) a right or option to *acquire or *dispose of an asset of a kind mentioned in paragraph (a), (b), (c) or (d).

(2) However, the asset is not covered by this section if it is any of the following:

(a) a *Division 230 financial arrangement;

(b) a *debt interest.

275-110 MIT not to be corporate unit trust or trading trust

(1) An entity that is a trust meets the requirement in this section at a time if the entity is not any of the following at that time:

(a) a corporate unit trust (within the meaning of section 102J of the Income Tax Assessment Act 1936) in relation to the income year in which the time occurs;

(b) a trading trust for the purposes of Division 6C of Part III of that Act in relation to that income year.

(2) If, apart from a particular circumstance, a trust would meet the requirement in paragraph (1)(b) at a time, the trust also meets the requirement in this section at a time if:

(a) the circumstance is temporary; and

(b) the circumstance arose outside the control of the trustee of the trust; and

(c) the trustee of the trust is not liable to pay income tax on the net income of the trust under section 102S of the Income Tax Assessment Act 1936 for the income year in which the time occurs; and

(d) it is fair and reasonable to treat the trust as meeting the requirement in this section at that time, having regard to the following matters:

(i) the matters in paragraphs (a), (b) and (c);

(ii) the nature of the circumstance;

(iii) the actions (if any) taken by the trustee of the trust to address or remove the circumstance, and the speed with which such actions are taken;

(iv) the extent to which treating the trust as meeting the requirement in this section at that time would increase or reduce the amount of tax otherwise payable by the trustee, the beneficiaries of the trust or any other entity;

(v) any other relevant matter.

275-115 MIT CGT choices

(1) The trustee of an entity that is a *managed investment trust may make a choice under this section that covers the managed investment trust.

(2) The choice must be made in the *approved form.

(3) The choice can be made only:

(a) if the entity became a *managed investment trust in the 2009-10 income year or a later income year (whether or not the entity existed before it became a managed investment trust) - on or before the latest of the following days:

(i) the day it is required to lodge its *income tax return for the income year in which it became a managed investment trust;

(ii) if the Commissioner allows a later day for the managed investment trust - that later day; or

(b) otherwise - on or before the latest of the following days:

(i) the last day in the 3 month period starting on the day on which this section commences;

(ii) the last day of the 2009-10 income year;

(iii) if the Commissioner allows a later day for the managed investment trust - that later day.

(4) The choice, once made, cannot be revoked.

(5) The choice is in force:

(a) in the circumstances mentioned in paragraph (3)(a) - for the income year in which the entity became a *managed investment trust (whether or not the entity existed before it became a managed investment trust) and later income years; or

(b) in the circumstances mentioned in paragraph (3)(b) - for the 2008-09 income year and later income years.

275-120 Consequences of not making choice - revenue account treatment

(1) This section applies if:

(a) the requirements in subsection 275-100(1) are met in relation to a *CGT asset held by a *managed investment trust, apart from the requirement in paragraph 275-100(1)(f); and

(b) the CGT asset is not:

(i) land (including an interest in land); or

(ii) a right or option to *acquire or *dispose of land (including an interest in land); and

(c) the managed investment trust disposes of, ceases to own or otherwise realises the asset; and

(d) disregarding this section:

(i) the net proceeds (if any) from the disposal, cessation or realisation would not be reflected in an amount being included in the assessable income of the managed investment trust (other than under Part 3-1 or 3-3); and

(ii) the gain or profit (if any) on the disposal, cessation or realisation would not be reflected in an amount being included in the assessable income of the managed investment trust (other than under Part 3-1 or 3-3); and

(iii) the loss (if any) on the disposal, cessation or realisation would not be reflected in an amount being deductible by the managed investment trust.

(2) For the purposes of this Act, treat the disposal, cessation of ownership of or realisation of the asset in the same way as the disposal, cessation of ownership of or realisation of a *revenue asset.

Subdivision 275-C - Carried interests in managed investment trusts

Table of sections

275-200 Gains and losses etc. from carried interests in managed investment trusts reflected in assessable income or deduction

275-200 Gains and losses etc. from carried interests in managed investment trusts reflected in assessable income or deduction

(1) This section applies if:

(a) you hold a *CGT asset in an income year that carries an entitlement to a distribution from an entity; and

(b) the entitlement to such a distribution is contingent upon the attainment of profits by the entity; and

(c) the entity satisfies any of these requirements:

(i) it is a *managed investment trust in relation to the income year;

(ii) it was a managed investment trust in relation to a previous income year; and

(d) you acquired the asset because of services you or your *associate provided, or will provide, to the entity; and

(e) you or your associate provided, or will provide, those services:

(i) as a manager of the entity; or

(ii) as an associate of a manager of the entity; or

(iii) as an employee of a manager of the entity; or

(iv) as an associate of an employee of a manager of the entity; and

(f) any of the following apply:

(i) you become entitled in the income year to such a distribution (regardless of whether the distribution is made immediately, or is to be made in the future);

(ii) a *CGT event happens in relation to the asset in the income year.

(2) Include in your assessable income for the income year:

(a) the amount of the distribution (except to the extent that it represents a return of capital that you or your associate contributed in order for you to *acquire the asset); or

(b) the amount of your gain or profit (if any) on the *CGT event.

(3) Subsection (2) does not apply to the extent that the amount is included in your assessable income as:

(a) *ordinary income under section 6-5; or

(b) *statutory income under a section of this Act, other than a provision in Part 3-1 or 3-3.

(4) An amount to which subsection (2) applies is taken, for the purposes of the *income tax laws, to have a source in Australia. For the purposes of this subsection, disregard subsection (3).

(5) You are entitled to a deduction for the income year for the amount of your loss (if any) on the *CGT event.

(6) Subsection (5) does not apply to the extent that you can deduct the amount under another provision of this Act.

(7) Subdivision 115-C does not apply to the amount of a distribution mentioned in subparagraph (1)(f)(i) if:

(a) that amount is included in your assessable income under subsection (2); or

(b) an amount referable to that amount is included in your assessable income under Division 6 of Part III of the Income Tax Assessment Act 1936.