Scott Farrell and Matt Irvin discuss the Federal Government's reforms to the Managed Investment Trust Regime.
The Federal Government has introduced to Parliament the Treasury Laws Amendment (Making Sure Foreign Investors Pay Their Fair Share of Tax in Australia and Other Measures) Bill 2018.
The Bill has been released following an extensive consultation process and implements the stapled structures integrity package that was announced in March 2018 to address perceived risks to the tax base and limit access to tax concessions available to certain foreign investors.
As signposted by the Bill's provocative title, these measures will have a far-reaching impact on foreign investment into real estate, residential property, infrastructure and agriculture sectors. In introducing the Bill, the Government released a media statement that surmises its purpose as to, "crack down on foreign investors using complex arrangements known as stapled structures and accessing broader tax concessions on income from Australian investments so it is taxed at very low tax rates, and in some cases, almost tax free.
"Foreign investors include foreign wealth funds and pension funds as well as those who invest in Australian agriculture and residential property.
"The measure will see hundreds of millions of dollars of revenue kept in Australia. Left as is, the amount of revenue being foregone could grow to billions of dollars."
These are fundamental changes that will significantly limit, or outright remove, many of the existing concessions that have underpinned foreign investment into these sectors. In particular, the scope of the Managed Investment Trust (MIT) regime, and its concessional 15 percent withholding tax rate, has been severely restricted.
We have summarised the key sectors and stakeholders that will be most impacted by these changes, along with some observations of unresolved issues and ongoing considerations.