The Assistant Treasurer, Senator Nick Sherry has announced the Government will put in place a new tax system for Managed Investment Trusts (MITs) for commencement on 1 July 2011.

The reforms are the Government’s response to the Board of Taxation’s (Board) report into the tax arrangements applying to MITs.

The key features of the new MIT tax system are:

the provision of an elective “attribution” system of taxation to replace the present entitlement system;

this new attribution system will provide that investors will be taxed only on the income that the trustee allocates to them on a fair and reasonable basis, consistent with their entitlements under the trust deed or the trust’s constituent documents.

establishing the ability to deal with “over or under” distributions within a five per cent cap so that trusts are not required to reissue statements and investors are not required to revisit tax returns;

removing double taxation; and

abolishing Division 6B of the Income Tax Assessment Act 1936 which relates to corporate unit trusts and which the Board found redundant.

The new arrangements will commence on 1 July 2011. In establishing the new MIT tax system, the Government accepted 38 of the Board’s 48 recommendations.