Scott Farrell, Ed Tong, and Grant Mackinlay suggest foreign investors ensure their MIT governance protocols are appropriate.
The Australian Taxation Office (ATO) has confirmed it is devoting compliance resources to determine whether Managed Investment Trusts (MITs) established by foreign investors meet the requirements to qualify as MITs. This expected move was confirmed in the ATO’s latest draft of the Privatisation and Infrastructure Framework.
Given the ATO’s increased scrutiny on MITs as an investment vehicle, foreign investors should ensure appropriate governance protocols and documentation of both those protocols and observance of those protocols are in place to ensure compliance with MIT requirements is able to be demonstrated.
The ATO focus is on ensuring that:
The ATO is likely to scrutinise all Australian MIT platforms established by foreign investors, even though the stated ATO focus is on foreign investors establishing a MIT to invest into an Australian unit trust that is not an MIT. In our experience, foreign investors typically establish MITs to invest into a joint venture MIT managed by an Australian fund manager.
In light of the issues highlighted in the Framework, investors should contact your KPMG advisor to assist with:
Many foreign investors have established processes to regularly review the performance of Australian investments undertaken by an MIT. However, it is important to ensure your governance arrangements in respect of these investments and the review of the financial performance of these investments continue to be substantially undertaken in Australia. The manner in which the processes and review of investment performance are documented is critical to being able to demonstrate that the investment management test is satisfied.
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.