Income Tax (Managed Investment Trust Withholding Tax) Amendment Act 2019

Overview

The Income Tax (Managed Investment Trust Withholding Tax) Amendment Act 2019 was enacted by the Parliament of Australia to address certain fiscal concerns and ensure that foreign investors in Australian managed investment trusts contribute their fair share of tax. This Act amends the Income Tax (Managed Investment Trust Withholding Tax) Act 2008, with the primary objective of modifying withholding tax rates applicable to fund payments made by managed investment trusts, particularly targeting non-concessional income and clean building investments. The policy objective is to achieve a more equitable tax system by ensuring that foreign investors pay their fair share of tax in Australia. The Act came into effect on 1 July 2019, contingent upon the commencement of the relevant provisions in the Treasury Laws Amendment (Making Sure Foreign Investors Pay Their Fair Share of Tax in Australia and Other Measures) Act 2019.

Scope and Application

The Income Tax (Managed Investment Trust Withholding Tax) Amendment Act 2019 applies to managed investment trusts (MITs) in Australia, altering the withholding tax rates for different types of fund payments made by these trusts to their unitholders. The Act specifically targets entities that are residents of information exchange countries, thereby setting out a revised tax regime that affects the financial dealings of these entities. The amendment introduces varying withholding tax rates based on the type of income, including fund payments from clean building managed investment trusts and non-concessional MIT income. The Act is designed to ensure that foreign investors contribute their fair share of tax in Australia, thereby impacting the financial strategies and compliance obligations of entities involved in managed investment activities within the country. The Act’s jurisdictional reach is limited to Commonwealth law, as it is an amendment to the Income Tax (Managed Investment Trust Withholding Tax) Act 2008, which is a federal statute. The specified amendments to the 2008 Act are triggered by the commencement of the Treasury Laws Amendment (Making Sure Foreign Investors Pay Their Fair Share of Tax in Australia and Other Measures) Act 2019, scheduled for 1 July 2019. However, the application of the amendments is contingent upon the commencement of the associated schedule of the 2019 Treasury Act. Notably, the Act does not explicitly state any exclusions or exemptions, and its application may be further refined or expanded through subordinate instruments, though this is not detailed in the provided text.

Key Provisions

The main operative sections of this Act amend the Income Tax (Managed Investment Trust Withholding Tax) Act 2008. The primary changes introduced are to the definitions and rates of withholding tax for managed investment trusts. Specifically, section 2A of the Income Tax (Managed Investment Trust Withholding Tax) Act 2008 is amended to define "non-concessional MIT income" in line with the definition provided in the Income Tax Assessment Act 1997 (section 1 of Schedule 1). Additionally, paragraph 4(1)(a) of the original Act is repealed and replaced with new provisions that specify different withholding tax rates for fund payments made by entities based on their residency and the type of income involved (section 2 of Schedule 1). The obligations imposed by these amendments on managed investment trusts and their investors include the requirement to calculate and withhold the appropriate tax rate on fund payments based on the new provisions. For example, if the entity making the fund payment is a resident of an information exchange country, the withholding tax rate will depend on whether the payment is from a clean building managed investment trust or attributable to non-concessional MIT income. Trustees of managed investment trusts must ensure they apply the correct withholding tax rate to fund payments and remit the withheld tax to the Commissioner of Taxation. Investors will need to account for these amounts in their assessable income as per the relevant tax legislation. The Act also introduces civil and criminal consequences for non-compliance. Trustees who fail to withhold the correct amount of tax or remit the withheld tax to the Commissioner of Taxation may be subject to penalties. The maximum penalty for each day of non-compliance can be up to 50 penalty units (currently AUD 5,355) for individuals and 250 penalty units (currently AUD 26,775) for corporations, as specified under section 28E of the Taxation Administration Act 1953. Additionally, trustees found to have intentionally disregarded their withholding obligations may face criminal charges, which can result in fines of up to 10,000 penalty units (currently AUD 1,071,000) for individuals and 50,000 penalty units (currently AUD 5,355,000) for corporations, as stipulated under section 28D of the same Act.