Bill Shorten (Maribyrnong, Australian Labor Party, Parliamentary Secretary for Disabilities and Children's Services) Share this | Hansard source

by leave—I present a supplementary explanatory memorandum and move government amendments (1) to (20), as circulated, together.

(1)    Schedule 5, item 4, page 14 (lines 22 to 24), omit paragraph 12-400(1)(c), substitute:

             (c)    a substantial proportion of the investment management activities carried out in relation to the trust in respect of all of the following assets of the trust are carried out in Australia throughout the income year:

                   (i)    assets that are situated in Australia at any time in the income year;

                  (ii)    assets that are ^*taxable Australian property at any time in the income year;

                 (iii)    assets that are ^*shares, units or interests listed for quotation in the official list of an ^*approved stock exchange in Australia at any time in the income year; and

(2)    Schedule 5, item 4, page 14 (line 28) to page 15 (line 19), omit paragraphs 12-400(1)(e) and (f), substitute:

             (e)    at the time the payment is made:

                   (i)    the trust is covered by section 12-401 (trusts with wholesale membership); or

                  (ii)    if the trust is not covered by section 12-401—the trust is registered under section 601EB of the Corporations Act 2001; and

              (f)    the trust satisfies, in relation to the income year:

                   (i)    if, at the time the payment is made, the trust is registered under section 601EB of the Corporations Act 2001 and is covered by section 12-401—either or both of the widely-held requirements in subsections 12-402(1) and 12-402A(1); or

                  (ii)    if, at the time the payment is made, the trust is so registered and is not covered by section 12-401—either or both of the widely-held requirements in subsections 12-402(1A) and 12-402A(1); or

                 (iii)    if, at the time the payment is made, the trust is not so registered and is covered by section 12-401—the widely-held requirements in subsection 12-402(1); and

             (g)    the trust satisfies the closely-held restrictions in subsection 12-402B(1) in relation to the income year; and

             (h)    if the trust is covered by section 12-401 at the time the payment is made—it satisfies the licensing requirements in section 12-403 in relation to the income year.

(3)    Schedule 5, item 4, page 16 (lines 18 and 19), omit “paragraph (1)(e) and subparagraph (1)(f)(i)”, substitute “paragraphs (1)(f) and (g)”.

(4)    Schedule 5, item 4, page 16 (line 20), omit paragraph 12-400(4)(a), substitute:

             (a)    the trust is created during the period:

                   (i)    starting 6 months before the start of the income year; and

                  (ii)    ending at the end of the income year; or

(5)    Schedule 5, item 4, page 16 (line 24) to page 17 (line 13), omit section 12-401, substitute:

12-401 Trusts with wholesale membership

                 A trust is covered by this section at a time if, at that time:

             (a)    the trust is not required to be registered in accordance with section 601ED of the Corporations Act 2001 (whether or not it is actually so registered) because of subsection 601ED(2) of that Act (no product disclosure statement required) or because it is operated or managed by an entity covered by subsection 12-403(2) (Crown entities); and

             (b)    the total number of entities that had become a ^*member of the trust because a financial product or a financial service was provided to, or acquired by, the entity as a retail client (within the meaning of sections 761G and 761GA of the Corporations Act 2001) is no more than 20; and

             (c)    the entities mentioned in paragraph (b) have a total ^*MIT participation interest in the trust of no more than 10%.

(6)    Schedule 5, item 4, page 17 (line 14), omit “for unregistered MIS”, substitute “ordinary case”.

(7)    Schedule 5, item 4, page 17 (lines 15 to 25), omit subsection 12-402(1), substitute:

        (1)    The trust satisfies the requirements in this subsection in relation to the income year if, at the time the payment mentioned in paragraph 12-400(1)(a) is made, the trust has at least 25 ^*members.

     (1A)    The trust satisfies the requirements in this subsection in relation to the income year if, at the time the payment mentioned in paragraph 12-400(1)(a) is made:

             (a)    units in the trust are listed for quotation in the official list of an ^*approved stock exchange in Australia; or

             (b)    the trust has at least 50 ^*members (ignoring objects of a trust).

(8)    Schedule 5, item 4, page 17 (line 26), omit “paragraph (1)(a)”, substitute “subsection (1) and paragraph (1A)(b)”.

(9)    Schedule 5, item 4, page 18 (lines 1 to 4), omit subparagraphs 12-402(2)(c)(i) and (ii), substitute:

              (i)    work out the ^*MIT participation interest in the trust of each entity mentioned in subparagraph (a)(ii); and

             (ii)    for each of those entities, multiply the total of its MIT participation interest in the trust by 50 and round the result upwards to the nearest whole number; and

            (iii)    work out the total of the results of subparagraph (ii) for all of those entities;

(10)  Schedule 5, item 4, page 18 (line 7), omit “This section”, substitute “This subsection”.

(11)  Schedule 5, item 4, page 18 (lines 16 to 19), omit paragraph 12-402(3)(e), substitute:

             (e)    an entity that is recognised under a ^*foreign law as being used for collective investment by means of pooling the contributions of at least 50 members of the entity as consideration to acquire rights to benefits produced by the entity, if the members of the entity do not have day-to-day control over the operation of the entity;

              (f)    an entity, the principal purpose of which is to fund pensions (including disability and similar benefits) for the citizens or other contributors of a foreign country, if:

                   (i)    the entity is a fund established by an ^*exempt foreign government agency; or

                  (ii)    the entity is established under a foreign law for an exempt foreign government agency; or

                 (iii)    the entity is a ^*wholly-owned subsidiary of an entity mentioned in subparagraph (i) or (ii);

             (g)    an investment entity that satisfies all of these requirements:

                   (i)    the entity is wholly-owned by one or more ^*foreign government agencies, or is a wholly-owned subsidiary of one or more foreign government agencies;

                  (ii)    the entity is established using only the public money or public property of the foreign government concerned;

                 (iii)    all economic benefits obtained by the entity have passed, or are expected to pass, to the foreign government concerned;

             (h)    an entity established and wholly-owned by an ^*Australian government agency, if the capital of the entity, and returns from the investment of that capital, are used for the primary purpose of meeting statutory government liabilities or obligations (such as superannuation liabilities and liabilities arising from compensation or workcover claims);

              (i)    an entity of a kind similar to an entity mentioned in the preceding paragraphs of this subsection as specified in the regulations.

(12)  Schedule 5, item 4, page 18 (lines 26 to 32), omit paragraph 12-402(4)(b), substitute:

             (b)    do not treat an object of the trust as a member of the trust;

           (ba)    if the trust is mentioned in subparagraph 12-400(1)(e)(i) (trusts with wholesale membership)—do not treat an individual as a member of the trust (other than an individual who became a member of the trust because a financial product or a financial service was provided to, or acquired by, the individual as a wholesale client (within the meaning of section 761G of the Corporations Act 2001));

(13)  Schedule 5, item 4, page 18 (lines 36 and 37), omit “For the purposes of subparagraph (1)(b)(i) and subsection (4), apply these rules”, substitute “The rules are as follows”.

(14)  Schedule 5, item 4, page 19 (after line 13), after section 12-402, insert:

12-402A Widely-held requirements for registered MIT—special case for entities covered by subsection 12-402(3)

        (1)    The trust satisfies the requirements in this subsection in relation to the income year if:

             (a)    one or more entities covered by subsection 12-402(3) have a total ^*MIT participation interest in the trust of more than 25% at the time the payment mentioned in paragraph 12-400(1)(a) is made; and

             (b)    at no time in the income year does an entity (other than an entity covered by subsection 12-402(3)) have a MIT participation interest in the trust of more than 60%.

        (2)    For the purposes of paragraphs (1)(a) and (b):

             (a)    if:

                   (i)    an entity covered by subsection 12-402(3) has a ^*MIT participation interest (the first interest) in the trust; and

                  (ii)    another entity covered by subsection 12-402(3) also has a MIT participation interest (the second interest) in the trust;

                      disregard the second interest to the extent that it arises through the existence of the first interest; and

             (b)    if an entity that is not a trust has a MIT participation interest in the trust because it holds interests in the trust indirectly, through a ^*chain of trusts—do not treat a trust in the chain of trusts as having a MIT participation interest in the trust.

        (3)    For the purposes of paragraph (2)(b), treat an entity covered by subsection 12-402(3) as an entity that is not a trust.

        (4)    For the purposes of paragraphs (1)(a) and (b), apply the rules in subsection 12-402(6).

(15)  Schedule 5, item 4, page 19 (after line 13), after proposed section 12-402A, insert:

12-402B Closely-held restrictions

        (1)    The trust satisfies the requirements in this subsection in relation to the income year unless, at any time in the income year, any of the following situations exist:

             (a)    for a trust mentioned in subparagraph 12-400(1)(e)(i) (trusts with wholesale membership)—10 or fewer persons have a total ^*MIT participation interest in the trust of 75% or more;

             (b)    if paragraph (a) does not apply—20 or fewer persons have a total MIT participation interest in the trust of 75% or more;

             (c)    a foreign resident individual has a MIT participation interest in the trust of 10% or more.

        (2)    For the purposes of paragraphs (1)(a) and (b):

             (a)    if an entity covered by subsection 12-402(3) has a ^*MIT participation interest in the trust—treat that entity as not having a MIT participation interest in the trust; and

             (b)    if an entity that is not a trust has a MIT participation interest in the trust because it holds interests in the trust indirectly, through a ^*chain of trusts:

                   (i)    if the entity is covered by subsection 12-402(3)—do not treat it as having a MIT participation interest in the trust; and

                  (ii)    do not treat a trust in the chain of trusts as having a MIT participation interest in the trust.

        (3)    For the purposes of paragraph (2)(b), treat an entity covered by subsection 12-402(3) as an entity that is not a trust.

        (4)    For the purposes of paragraphs (1)(a) and (b), apply the rules in subsection 12-402(6).

(16)  Schedule 5, item 6, page 20 (line 32) to page 21 (line 5), omit subitem (2).

(17)  Schedule 5, item 6, page 21 (line 6), omit “(3) The amendments made by this Schedule”, substitute “(2) Subject to items 7 and 8, the amendments made by this Schedule”.

(18)  Schedule 5, item 6, page 21 (line 10), omit “(4) The amendments made by this Schedule”, substitute “(3) Subject to items 7 and 8, the amendments made by this Schedule”.

(19)  Schedule 5, page 21 (after line 12), at the end of the Schedule, add:

7 Transitional—trusts that were managed investment trusts etc. for income year starting before 26 May 2010

(1)    This item applies if:

             (a)    apart from this item, a trust is not a managed investment trust in relation to an income year; and

             (b)    the income year is the 2010-11, 2011-12, 2012-13, 2013-14, 2014-15, 2015-16 or 2016-17 income year.

(2)    The trust is a managed investment trust in relation to the income year if:

             (a)    the trust is a managed investment trust (within the meaning of section 12-400 in Schedule 1 to the Taxation Administration Act 1953 immediately before the commencement of this Schedule) in relation to the income year; and

             (b)    in relation to an income year starting before 26 May 2010, the trust:

                   (i)    was a managed investment trust (within that meaning); or

                  (ii)    would have been a managed investment trust (within that meaning) if the trustee of the trust had made the first fund payment in relation to the income year in that income year and before 26 May 2010.

(20)  Schedule 5, page 21 (after line 12), at the end of the Schedule, after proposed item 7, add:

8 Transitional—substituted accounting periods

(1)    This item applies if the first income year mentioned in subitem 6(1) starts after the first 1 July after the day on which this Act receives the Royal Assent.

(2)    For the purposes of working out liabilities to pay amounts in accordance with Subdivision 840-M of the Income Tax Assessment Act 1997, apply the following rules:

             (a)    treat the income year of an entity (the actual income year) ending immediately before that first income year as being the following 2 income years of the entity:

                   (i)    an income year (the first notional income year) that starts at the start of the actual income year and ends immediately before that 1 July;

                  (ii)    an income year (the second notional income year) that starts on that 1 July and ends at the end of the actual income year;

             (b)    do not apply the amendments made by this Schedule in determining whether the entity is a managed investment trust in relation to the first notional income year;

             (c)    apply the amendments made by this Schedule in determining whether the entity is a managed investment trust in relation to the second notional income year;

             (d)    for the purposes of determining rates of taxation applicable for the purposes of that Subdivision, treat the first notional income year and the second notional income year as both being the income year following the first income year mentioned in subparagraph 4(1)(a)(i) of the Income Tax (Managed Investment Trust Withholding Tax) Act 2008.

These amendments will deliver more certainty around the definition of a managed investment trust by clarifying the operation of the rules, taking into account general financial sector industry practice. Doing so will advance the government’s commitment to secure Australia’s place as a leading financial services centre in the region and more generally improve the competitiveness of the Australian funds management industry by making the reduced withholding tax rates available on distributions from a wider range of funds. These changes will ensure that, while continuing to attract and retain foreign capital, the Australian funds management industry will continue to be supported and enhanced.

This objective is achieved through a number of targeted amendments. Firstly, a substantial proportion of the investment management activities undertaken in relation to the assets of the fund connected with Australia are now required to be carried out in Australia. That is in amendment 1. Secondly, amendments (2), (5), (7), (8), (13), (14) and (15) expand the widely held rules for registered trusts to more appropriately recognise the nature of certain widely held members, including through reducing the wholesale member requirement from 30 to 25 wholesale members for wholesale trusts. These changes will better reflect industry practices.

Amendment 11 expands the list of entities considered to be widely held, including foreign pension plans, sovereign wealth funds and certain government agencies, and widely held foreign equivalents of a managed investment scheme. A regulation-making power has been included to provide for further expansion of the list if warranted. Furthermore, a start-up period of 18 months is provided, during which a trust may be treated as a managed investment trust prior to meeting the widely held requirements in amendment 4. This extended period more appropriately facilitates new trusts to enter the managed investment industry without suffering a competitive disadvantage. Finally, the transitional rules have been significantly enhanced in a number of ways, including extending its period of application to seven years. That is in amendments (16) to (20).

Question agreed to.

Bill, as amended, agreed to.

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