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The ATO will be notifying accountants where an ineligible trust type has wrongly claimed status.
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Trust in eligibility checklist when it comes to MITs, ATO warns
17 April 2023
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Check that a managed investment trust has ticked all the eligibility criteria before answering yes to the question on a client’s return, the ATO warns accountants.
It said only certain types of trusts were eligible for the MIT regime and then only if other specific requirements were met. Crucially, the trust must be widely held rather than closely-held.
The Tax Office will be alerting accountants via post, advising them to check client eligibility where they hold ineligible trust types which have claimed MIT status over the past few years.
Agents would then need to reply with a declaration or voluntary disclosure, depending on whether or not incorrect concessional tax treatment was applied.
It said advice was available where taxpayers believed they were eligible for the MIT regime and still received a letter.
The ATO said definitions of what constituted an MIT had changed over time, with 2010 ushering in revisions to the scope of trusts and the widely held requirements, along with minor changes in 2016.
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The current requirements for an MIT were that it was a publicly held, commercially operated collective investment trust that invested primarily in passive income activities.
A trust qualified as an MIT if it met all of the following:
- The trustee is an Australian resident, or the central management and control of the trust is in Australia
- The trust does not carry on or control an active trading business
- The trust is a managed investment scheme
- The trust meets the widely held requirement
- The trust meets the closely held restriction
- The trust is operated or managed by an appropriately regulated entity
It said if temporary circumstances beyond the control of the trustee existed, the trust might continue to be treated as a MIT where it was fair and reasonable to do so.
Eligibility requirements were designed to ensure that a MIT was a genuine collective investment vehicle and to limit the ability of foreign residents to adopt trust structures to access concessional withholding tax rates.
Under the MIT withholding tax regime, foreign investors were eligible for a reduced rate of withholding tax on fund payments from MITs if they were a resident of a country with which Australia had an effective exchange of information treaty.
The Australian management requirement in the MIT definition was designed to enhance the competitiveness of the Australian managed funds industry.
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