Read: Access full Federal Budget 2018-19 review here
Denial of CGT discount for MITs & AMITs
Proposed to apply to payments made from 1 July 2019, beneficiaries who are not entitled to the CGT discount in their own right (for example, investors on revenue account, companies, and foreign investors) will be prevented from getting a benefit from the CGT discount being applied at the trust level.
These changes seek to ensure that MITs and AMITs operate as genuine flow-through tax vehicles and that investors are taxed on any income as if they had made a direct investment. Capital gains derived by MITs and AMITs will retain their character and be able to be distributed as capital gains, which can then be discounted in the hands of the beneficiary.
We have serious concerns with this announcement despite the Government indicating minimal tax revenue will be raised. In particular, there is a risk that expenses incurred by MITs and AMITs will be offset against gross (not discounted) capital gains derived by the MIT or AMIT. This could result in an increased amount of taxable capital gains being distributed to beneficiaries eligible for the CGT discount (like individuals) compared to an investor holding assets directly on CGT account.
We will closely monitor how the Government proposes to implement this measure to ensure appropriate outcomes.
Update to list of Information Exchange Countries
The Government will update the list of Information Exchange countries to reflect the 56 new exchange-of-information agreements Australia has entered into since 2012. The update will be effective from 1 January 2019.
The jurisdictions that will be added are: Albania, Andorra, Austria, Azerbaijan, Bahrain, Barbados, Brazil, Bulgaria, Brunei, Cameroon, Chile, Colombia, Costa Rica, Croatia, Cyprus, Dominica, El Salvador, Estonia, Faroe Islands, Gabon, Georgia, Ghana, Greece, Greenland, Grenada, Guatemala, Iceland, Israel, Kazakhstan, Kenya, Latvia, Liberia, Liechtenstein, Lithuania, Luxembourg, Marshall Islands, Moldova, Montserrat, Nigeria, Niue, Philippines, Portugal, Samoa, Saudi Arabia, Senegal, Seychelles, Sint Maarten, Slovenia, St Lucia, Switzerland, Tunisia, Turkey, Uganda, Ukraine, Uruguay and Vanuatu.
From 1 January 2019, fund payments made by MITs to investors in these jurisdictions should be eligible to access the reduced 15% MIT withholding tax rate, instead of the default 30%.
Clarification of prior announcement for agricultural REITs
The Budget restates the Government’s integrity package regarding stapled security structures that was announced on 27 March 2018. That announcement caused initial confusion, implying Real Estate Investment Trusts (REITs) holding agricultural land, and that are not within stapled security structures, might potentially be taxed as companies rather than retain their flow-through tax treatment.
Whilst not specifically announced as a change in the Budget Papers, they seem to have clarified that this change will only impact on foreign investors looking to access the concessional MIT withholding tax rate of 15% in agricultural REITs (i.e. there is no apparent intention to tax such agricultural REITs as companies).