Australia To Review Taxation Of Managed Funds

by Mary Swire, Tax-News.com, Hong Kong

27 February 2008

The Australian government has announced that it has asked the Board of Taxation to review the taxation arrangements that apply to managed funds.

The announcement by Assistant Treasurer, Minister for Competition Policy and Consumer Affairs, Chris Bowen, coincided with the release on February 22nd of a consultation paper on interim changes to trading trust rules which apply to real estate investment trusts.

"Directing the Board of Taxation to undertake a review of the income tax arrangements applying to managed investment trusts is a key part of the government's commitment to make Australia the financial services hub of Asia," Bowen stated.

He continued: "The review will provide options for introducing a specific tax regime for managed investment trusts to reduce complexity, increase certainty and minimise compliance costs. This will allow the government to implement reforms to enhance the international competitiveness of Australian managed funds to help ensure the future prosperity of the Australian economy."

In conducting the review, Bowen has asked the Board to consider:

• International developments especially those in the US, UK and Canada;
• Alternatives to the use of present entitlement to determine the income tax liability of beneficiaries and trustees, but which also provide broadly similar taxation outcomes for beneficiaries, having regard to the costs and benefits of those options;
• The international competitiveness of Australia's real estate investment trusts; and
• The desirability of extending relevant aspects of the recommended changes to the tax arrangements for other trusts.

Included in the review will be options to reform the trading trust rules in Division 6C of the Income Tax Assessment Act 1936 which particularly affect real estate investment trusts.

"Pending the release of the Board's report, I have released a consultation paper on the interim measures to remove the more burdensome elements of Division 6C," Bowen stated.

The consultation paper covers:

• Ways to clarify the scope and meaning of investment in land for the purpose of deriving rent.
• A 25% allowance for non-rental income from an investment in land could be created to clarify the meaning of ‘primarily' in the context of investing in land for the purpose, or primarily the purpose, of deriving rent.
• An expansion of the range of financial instruments that a trustee could trade or invest in without triggering company taxation.

The Board is due to provide a final report on the issue around the middle of 2009.

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