Username:
Password:
Forgot Password?

Board of Taxation to review taxation of managed funds
Print this Article Print this Article
Email this Article

Update: 14 August 2008 - Submission on draft legislation to reform Division 6C 
 
The Institute has lodged a submission with Treasury on the draft legislation to reform Division 6C of the Income Tax Assessment Act 1936 that was released for comment by the Assistant Treasurer and Minister for Competition Policy and Consumer Affairs, the Hon Chris Bowen MP on 23 July 2008. 
 
As discussed below, these are interim changes to the trading trust rules pending the release of the Board of Taxation's report on the review of managed funds scheduled for the middle of 2009.  
 
The draft legislation is intended to:

  • clarify the scope and meaning of investment in land for the purpose of deriving rent  
  • introduce a 25% safe harbour allowance for non-rental, non trading income from investments in land  
  • expand the range of financial instruments that a managed fund may invest in or trade, and  
  • provide a further 2% safe harbour allowance at the whole of trust level for non-trading income.
The Institute has raised a number of concerns in its submission and has also restated its view that more wide ranging reforms to Division 6C are required. It is anticipated that these will be dealt with by the Board of Taxation as part of its review of the tax arrangements applicable to managed funds.  
 
 
22 February 2008 
 
In a press release issued on 22 February 2008 the Assistant Treasurer and Minister for Competition Policy and Consumer Affairs announced that the Government has asked the Board of Taxation to review the taxation arrangements that apply to managed funds. 
 
Terms of reference for review 
 
The review is intended to provide options for introducing a specific tax regime to reduce complexity, increase certainty and minimise compliance costs. In conducting the review the Board has been specifically asked 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
    •  
  • 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.
The Assistant Treasurer's Press Release, including the Terms of Reference for the Board of Taxation, are available on his website. We anticipate that the Board will call for submissions from interested parties in due course. 
 
Proposed interim measures 
 
The Minister also released a consultation paper on proposed interim changes to the trading trust rules pending the release of the Board's report around the middle of 2009. 
 
The consultation paper canvasses:
  • ways to clarify the scope and meaning of investment in land for the purpose of deriving rent
    •  
  • a 25 per cent allowance for non-rental income from an investment in land 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 consultation paper on potential changes to Division 6C is available on the Treasury's website. On 19 March 2008 the Institute lodged a submission with Treasury on the consultation paper. 
 
Both the review and the interim changes for trading trusts were foreshadowed during the election and confirmed in its 2008-09 Budget (Source: Budget Paper No 2, p28). 
 
The Institute has been at the forefront in highlighting the shortcomings of Division 6C, including in its 2007-08 Pre-Budget Submission and a more detailed submission dated 21 December 2006, and has actively advocated for an interim solution pending the broader development of a managed investments tax regime in Australia. Its 2008-2009 Pre-Budget Submission called on the Government to deliver on its pre-election promise in this regard. It is pleasing to see that Government has taken action in this regard so soon after the elections.