Tax Laws Amendment (New Tax System for Managed Investment Trusts) Act 2016 (53 of 2016)

Schedule 4 Managed investment trusts

Income Tax Assessment Act 1997

3 Subdivision 275-A

Repeal the Subdivision, substitute:

Subdivision 275-A - Meaning of managed investment trust

Guide to Subdivision 275-A

275-5 What this Subdivision is about

This Subdivision sets out the requirements for a trust to be a managed investment trust in relation to an income year.

Table of sections

Operative provisions

275-10 Meaning of managed investment trust

275-15 Trusts with wholesale membership

275-20 Widely-held requirements - ordinary case

275-25 Widely-held requirements for registered MIT - special case for entities covered by subsection 275-20(4)

275-30 Closely-held restrictions

275-35 Licensing requirements for unregistered MIS

275-40 MIT participation interest

275-45 Meaning of managed investment trust - every member of trust is a managed investment trust etc.

275-50 Extended definition of managed investment trust - no fund payment made in relation to the income year

275-55 Extended definition of managed investment trust - temporary circumstances outside the control of the trustee

Operative provisions

275-10 Meaning of managed investment trust

(1) A trust is a managed investment trust in relation to an income year if any of the following requirements are met:

(a) the trust is covered under subsection (3) of this section in relation to the income year (ordinary case);

(b) the trust is covered under section 275-45 in relation to the income year (only members of trust are managed investment trusts etc.).

(2) A trust is also a managed investment trust in relation to an income year if any of the following requirements are met:

(a) the trust is covered under section 275-50 in relation to the income year (no fund payment made in relation to the income year);

(b) the trust is covered under section 275-55 in relation to the income year (temporary circumstances outside the control of the trustee).

(3) A trust is covered under this subsection in relation to an income year if:

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

(i) the trustee of the trust was an Australian resident; or

(ii) the central management and control of the trust was in Australia; and

(b) the trust is not a trust covered by subsection (4) (trading trust etc.) in relation to the income year; and

(c) at the time the payment is made, the trust is a managed investment scheme (within the meaning of section 9 of the Corporations Act 2001); and

(d) at the time the payment is made:

(i) the trust is covered by section 275-15 (trusts with wholesale membership); or

(ii) if the trust is not covered by section 275-15 - the trust is registered under section 601EB of the Corporations Act 2001; and

(e) the trust satisfies, in relation to the income year:

(i) if, at the time the payment is made, the trust is registered under section 601EB of the Corporations Act 2001 and is covered by section 275-15 - either or both of the widely-held requirements in subsections 275-20(1) and 275-25(1); or

(ii) if, at the time the payment is made, the trust is so registered and is not covered by section 275-15 - either or both of the widely-held requirements in subsections 275-20(2) and 275-25(1); or

(iii) if, at the time the payment is made, the trust is not so registeredand is covered by section 275-15 - the widely-held requirements in subsection 275-20(1); and

(f) the trust satisfies the closely-held restrictions in subsection 275-30(1) in relation to the income year; and

(g) if the trust is covered by section 275-15 at the time the payment is made - it satisfies the licensing requirements in section 275-35 in relation to the income year.

Trading unit trust or other trust carrying on trading business etc. cannot be managed investment trust

(4) A trust is covered by this subsection in relation to an income year if:

(a) in the case of a unit trust - the trust is a trading trust for the purposes of Division 6C of Part III of the Income Tax Assessment Act 1936 in relation to the income year; or

(b) in any other case - the trustat any time in the income year:

(i) carried on a trading business (within the meaning of that Division); or

(ii) controlled, or was able to control, directly or indirectly, the affairs or operations of another person in respect of the carrying on by that other person of a trading business (within the meaning of that Division).

Crown entities etc.

(5) For the purposes of paragraphs (3)(d) and (e), treat an entity as registered under section 601EB of the Corporations Act 2001 at the time the payment is madeif at that time the trust is operated by:

(a) an entity that would, but for subsection 5A(4) of that Act (about the Crown not being bound by Chapter 6CA or 7 of that Act), be required under that Act to be a financial services licensee (within the meaning of section 761A of that Act) whose licence would cover operating such a managed investment scheme; or

(b) an entity that:

(i) is a *wholly-owned subsidiary of an entity of a kind mentioned in paragraph (a); and

(ii) would, but for any instrument issued by ASIC under that Act that has effect in relation to the entity and operation of the scheme mentioned in paragraph (3)(c), be required under that Act to be a financial services licensee (within the meaning of section 761A of that Act) whose licence would cover operating such a managed investment scheme.

Start-up and wind-down phases

(6) Treat the requirements in paragraphs (3)(e) and (f) as being satisfied if:

(a) the trust is created during the period:

(i) starting 12 months before the start of the income year; and

(ii) ending at the end of the income year; or

(b) the trust ceases to exist during the income year, and was a *managed investment trust (disregarding paragraph (a) of this section) in relation to the previous income year.

275-15 Trusts with wholesale membership

A trust is covered by this section at a time if, at that time:

(a) the trust is not required to be registered in accordance with section 601ED of the Corporations Act 2001 (whether or not it is actually so registered) because of subsection 601ED(2) of that Act (no product disclosure statement required) or because it is operated or managed by an entity covered by subsection 275-35(2) (Crown entities); and

(b) the total number of entities that had become a *member of the trust because a financial product or a financial service was provided to, or acquired by, the entity as a retail client (within the meaning of sections 761G and 761GA of the Corporations Act 2001) is no more than 20; and

275-20 Widely-held requirements - ordinary case

(1) The trust satisfies the requirements in this subsection in relation to the income year if, at the time the payment mentioned in paragraph 275-10(3)(a) is made, the trust has at least 25 *members.

(2) The trust satisfies the requirements in this subsection in relation to the income year if, at the time the payment mentioned in paragraph 275-10(3)(a) is made:

(a) units in the trust are listed for quotation in the official list of an *approved stock exchange in Australia; or

(b) the trust has at least 50 *members (ignoring objects of a trust).

(3) For the purposes of subsection (1) and paragraph (2)(b), determine the number of *members of the trust as follows:

(a) first, by applying the rules in subsection (5), identify:

(i) the members of the trust that are not entities covered by subsection (4); and

(ii) the members of the trust that are entities covered by subsection (4);

(b) next, work out the number of members mentioned in subparagraph (a)(i);

(i) work out the *MIT participation interest in the trust of each entity mentioned in subparagraph (a)(ii); and

(ii) for each of those entities, multiply the total of its MIT participation interest in the trust by 50 and round the result upwards to the nearest whole number; and

(iii) work out the total of the results of subparagraph (ii) for all of those entities;

(d) next, work out the total of the results of paragraphs (b) and (c).

(4) This subsection covers the following kinds of entity:

(a) a *life insurance company;

(b) a *foreign life insurance company that is regulated under a *foreign law;

(c) a *complying superannuation fund, a *complying approved deposit fund or a *foreign superannuation fund, being a fund that has at least 50 *members;

(d) a *pooled superannuation trust that has at least one member that is a complying superannuation fund that has at least 50 members;

(e) a *managed investment trust in relation to the income year;

(f) an entity:

(i) that is recognised under a foreign law as being used for collective investment by pooling the contributions of its members as consideration to acquire rights to benefits produced by the entity; and

(ii) that has at least 50 members; and

(iii) the contributing members of which do not have day-to-day control over the entity's operation;

(g) an entity, the principal purpose of which is to fund pensions (including disability and similar benefits) for the citizens or other contributors of a foreign country, if:

(i) the entity is a fund established by an *exempt foreign government agency; or

(ii) the entity is established under a foreign law for an exempt foreign government agency; or

(iii) the entity is a *wholly-owned subsidiary of an entity mentioned in subparagraph (i) or (ii);

(h) an investment entity that satisfies all of these requirements:

(i) the entity is wholly-owned by one or more *foreign government agencies, or is a wholly-owned subsidiary of one or more foreign government agencies;

(ii) the entity is established using only the public money or public property of the foreign government concerned;

(iii) all economic benefits obtained by the entity have passed, or are expected to pass, to the foreign government concerned;

(i) an entity established and wholly-owned by an *Australian government agency, if the capital of the entity, and returns from the investment of that capital, are used for the primary purpose of meeting statutory government liabilities or obligations (such as superannuation liabilities and liabilities arising from compensation or workcover claims);

(j) a *limited partnership, if, throughout the income year:

(i) at least 95% of the *membership interests in the limited partnership are owned by entities mentioned in the preceding paragraphs of this subsection, or by entities that are wholly-owned by entities so mentioned; and

(ii) the remaining membership interests (if any) in the limited partnership are owned by a *general partner of the limited partnership that habitually exercises the management power of the limited partnership;

(k) an entity, all the membership interests in which are owned by any of the following:

(i) entities mentioned in the preceding paragraphs of this subsection;

(ii) entities that are wholly-owned by entities mentioned in the preceding paragraphs of this subsection;

(iii) entities that are covered under this subsection because of a previous operation of this paragraph;

(l) an entity of a kind similar to an entity mentioned in the preceding paragraphs of this subsection as specified in the regulations.

(5) The rules are as follows:

(a) if an entity that is not a trust holds interests in the trust indirectly, through a *chain of trusts:

(i) treat the entity as a member of the trust; and

(ii) do not treat a trust in the chain of trusts as a member of the trust;

(b) do not treat an object of the trust as a member of the trust;

(c) if the trust is mentioned in subparagraph 275-10(3)(d)(i) (trusts with wholesale membership) - do not treat an individual as a member of the trust (other than an individual who became a member of the trust because a financial product or a financial service was provided to, or acquired by, the individual as a wholesale client (within the meaning of section 761G of the Corporations Act 2001));

(d) the rules in subsection (7).

(6) For the purposes of paragraph (5)(a), treat an entity covered by subsection (4) as an entity that is not a trust.

(7) The rules are as follows:

(a) treat the following entities as together being one entity:

(i) an individual;

(ii) each of his or her *relatives;

(iii) each entity acting in the capacity of nominee of an individual mentioned in subparagraph (i) or (ii);

(b) treat the following entities as together being one entity (the notional entity ):

(i) an entity that is not an individual;

(ii) each entity acting in the capacity of nominee of the entity mentioned in subparagraph (i).

(8) For the purposes of subsection (5), if the entity mentioned in subparagraph (7)(b)(i) is an entity covered by subsection (4), treat the notional entity as an entity covered by subsection (4).

275-25 Widely-held requirements for registered MIT - special case for entities covered by subsection 275-20(4)

(1) The trust satisfies the requirements in this subsection in relation to the income year if:

(a) one or more entities covered by subsection 275-20(4) have a total *MIT participation interest in the trust of more than 25% at the time the payment mentioned in paragraph 275-10(3)(a) is made; and

(b) at no time in the income year does an entity (other than an entitycovered by subsection 275-20(4)) have a MIT participation interest in the trust of more than 60%.

(2) For the purposes of paragraphs (1)(a) and (b):

(a) if:

(i) an entity covered by subsection 275-20(4) has a *MIT participation interest (the first interest ) in the trust; and

(ii) another entity covered by subsection 275-20(4) also has a MIT participation interest (the second interest ) in the trust;

disregard the second interest to the extent that it arises through the existence of the first interest; and

(b) if an entity that is not a trust has a MIT participation interest in the trust because it holds interests in the trust indirectly, through a *chain of trusts - do not treat a trust in the chain of trusts as having a MIT participation interest in the trust.

(3) For the purposes of paragraph (2)(b), treat an entity covered by subsection 275-20(4) as an entity that is not a trust.

(4) For the purposes of paragraphs (1)(a) and (b), apply the rules in subsection 275-20(7).

275-30 Closely-held restrictions

(1) The trust satisfies the requirements in this subsection in relation to the income year unless, at any time in the income year, any of the following situations exist:

(a) for a trust mentioned in subparagraph 275-10(3)(d)(i) (trusts with wholesale membership) - 10 or fewer persons have a total *MIT participation interest in the trust of 75% or more;

(b) if paragraph (a) does not apply - 20 or fewer persons have a total MIT participation interest in the trust of 75% or more;

(2) For the purposes of paragraphs (1)(a) and (b):

(a) if an entity covered by subsection 275-20(4) has a *MIT participation interest in the trust - treat that entity as not having a MIT participation interest in the trust; and

(b) if an entity that is not a trust has a MIT participation interest in the trust because it holds interests in the trust indirectly, through a *chain of trusts:

(i) if the entity is covered by subsection 275-20(4) - do not treat it as having a MIT participation interest in the trust; and

(ii) do not treat a trust in the chain of trusts as having a MIT participation interest in the trust.

(3) For the purposes of paragraph (2)(b), treat an entity covered by subsection 275-20(4) as an entity that is not a trust.

(4) For the purposes of paragraphs (1)(a) and (b), apply the rules in subsection 275-20(7).

275-35 Licensing requirements for unregistered MIS

(1) The trust satisfies the requirements in this section in relation to the income year if, at the time the payment mentioned in paragraph 275-10(3)(a) is made (the time of the first fund payment for the income year):

(a) the trust is operated or managed by:

(i) a financial services licensee (within the meaning of section 761A of the Corporations Act 2001) holding an Australian financial services licence whose licence covers it providing financial services (within the meaning of section 766A of that Act) to wholesale clients (within the meaning of section 761G of that Act); or

(ii) an authorised representative (within the meaning of section 761A of that Act) of such a financial services licensee; or

(b) the trust is operated or managed by an entity covered by subsection (2); or

(i) is a *wholly-owned subsidiary of an entity covered by subsection (2); and

(ii) is an entity covered by subsection (3).

(2) An entity is covered by this subsection if it would, but for subsection 5A(4) of the Corporations Act 2001 (about the Crown not being bound by Chapter 6CA or 7 of that Act), be required under that Act to be a financial services licensee (within the meaning of section 761A of that Act).

(3) An entity is covered by this subsection if it would, but for any instrument issued by ASIC under the Corporations Act 2001 that has effect in relation to the entity and the operation of the scheme mentioned in paragraph 275-10(3)(c), be required under that Act to be a financial services licensee (within the meaning of section 761A of that Act).

275-40 MIT participation interest

(1) An entity has a MIT participation interest in a trust if the entity, directly or indirectly:

(a) holds, or has the right to *acquire, interests representing a percentage of the value of the interests in the trust; or

(b) has the control of, or the ability to control, a percentage of the rights attaching to *membership interests in the trust; or

(2) The MIT participation interest of the entity in the trust is the greatest of the percentages mentioned in paragraphs (1)(a), (b) and (c).

275-45 Meaning of managed investment trust - every member of trust is a managed investment trust etc.

(1) A trust is covered under this section in relation to an income year if:

(a) the condition in paragraph 275-10(3)(a) is satisfied; and

(b) the condition in paragraph 275-10(3)(b) is satisfied; and

(i) the only *members of the trust are entities that are covered by subsection 275-20(4) (other than entities mentioned in paragraph 275-20(4)(f)); or

(ii) the only members of the trust are entities that are *managed investment trusts in relation to the income year because of subsection 275-10(2); and

(d) the trust satisfies the licensing requirements in section 275-35 in relation to the income year.

(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.

275-50 Extended definition of managed investment trust - no fund payment made in relation to the income year

A trust is covered under this section 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 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 when it was in existence; and

(c) the trust would be a managed investment trust in relation to the income year 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 on which it was in existence.

275-55 Extended definition of managed investment trust - temporary circumstances outside the control of the trustee

A trust is covered under this section in relation to an income year if:

(a) apart from a particular circumstance, the trust would be a *managed investment trust in relation to the income year; and

(b) the circumstance is temporary; and

(d) 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 *members of the trust or any other entity;

(v) any other relevant matter.

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