Taxation arrangements for managed funds and property trusts

The Government has asked the Board of Taxation to review the taxation
arrangements that apply to managed funds.

The Minister also
released a consultation paper on interim changes to trading trust rules
which apply to real estate investment trusts.

In conducting the review, the Assistant
Treasurer has asked the Board, within the broad policy framework for
the taxation of trusts as outlined in the Terms of Reference, to

  • 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, having regard to the costs and benefits of those options;
  • 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.

Included in the review will be options to reform the trading trust rules in Division 6C of the Income Tax Assessment Act 1936 which particularly affect real estate investment trusts.

The consultation paper covers:

  • 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 could be created 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.

Board will provide a final report around the
middle of 2009.

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