Australia: Arrangements that “inappropriately access” managed investment trust (MIT) withholding regime

The Australian Taxation Office (ATO) on March 7, 2025, issued a taxpayer alert (TA 2025/1) related to concerns over arrangements to restructure an existing trust or other inward investment structure to inappropriately access the managed investment trust (MIT) withholding regime (including deemed capital gains tax (CGT) treatment).

The taxpayer alert outlines the following features that such arrangements generally display:

• An Australian entity holds passive assets, but does not meet the requirements to access the MIT withholding tax regime, for example, because:
  • It is not a trust (for example, it is a company that is not a corporate collective investment vehicle (CCIV))
  • It is a unit trust directly owned by a single unitholder (and therefore does not meet the requirements of being a managed investment scheme (MIS))
  • The management of the trust does not satisfy the requirements in section 275-35 of the Income Tax Assessment Act 1997 (ITAA 1997)
• Restructure steps are undertaken to seek to satisfy the requirements to access the MIT withholding tax regime, for example, by:
  • o  Unnecessarily restructuring the ownership of the entity or underlying assets so that:
    • The inward investment structure includes an Australian unit trust
    • That unit trust is wholly directly owned by two or more unitholders who are not all MITs, to meet the pooled investment requirements to be a MIS; and
    • It is wholly indirectly owned by a single foreign entity covered by subsection 275-20(4) of the ITAA 1997; or
  • Changing arrangements such that the management of the trust is provided by an entity which meets the licensing requirements in section 275-35 of the ITAA 1997
• The restructure steps are done for the purpose of accessing the MIT withholding regime.

The ATO also explains that it is aware of “existing MITs that were established for the making of new inbound investments into Australia (as opposed to a restructure) that are indirectly owned by a single foreign entity covered by subsection 275-20(4) of the ITAA 1997,” and that while the general anti-avoidance rules (Part IVA) may be a relevant consideration, the ATO will not apply its compliance resources to these structures if they were established prior to the publication of TA 2025/1 unless there is material new investment or ownership change.

The ATO states that “taxpayers and advisers who enter into these types of arrangements will be subject to increased scrutiny” and that those who have entered into, or are contemplating entering into such arrangements, are encouraged to contact the ATO.
 

For more information, contact a tax professional with the KPMG member firm in Australia:

Matt Ervin | mattervin@kpmg.com.au

Shirley Lam | slam1@kpmg.com.au

Tasha Chen | tchen53@kpmg.com.au