On 26 June 2019, the Australian Taxation Office (ATO) released a draft law companion ruling LCR 2019/D2 (the ruling) which provides the Commissioner's preliminary views on the new non-concessional managed investment trust (MIT) income foreign resident withholding tax rules that will apply to income years commencing on or after 1 July 2019.

The new "non-concessional" designation is for certain types of MIT income including:

• MIT cross-staple arrangement income
• MIT trading trust income
• MIT agricultural income
• MIT residential housing income

Affected fund payments will be subject to MIT withholding tax at 30%, subject to transitional rules and exemptions (which differ according to MIT income type). The rules introduce potential significant tax policy, operations and systems changes for affected businesses.

The 62-page draft ruling covers the key aspects of the measures, with a focus on MIT cross-staple arrangement income, providing guidance on:

• When an amount is derived, received or made by a MIT
• The meaning of "cross-staple arrangement"
• The scope of application to cross-staple arrangement income
• The meaning of the terms "facility" and "economic infrastructure facility," relevant for cross-staple arrangement transitional periods and exemptions
• Integrity rules related to economic infrastructure facilities where income from land investments is derived
• The meaning of:
  • MIT trading trust income
  • MIT residential housing income
  • MIT agricultural income
• Transitional periods available for non-stapled non-concessional income amounts

There are 13 examples of the Commissioner's interpretation in practice, particularly in relation to cross-staple arrangements, and the associated transitional rules and exemptions.

Once finalized the ruling is proposed to apply to 2019/20 and later income years fund payments made from 1 July 2019, in line with the enacted measures.

Comments on the draft ruling are due by 9 August 2019.

A more detailed Tax Alert will be forthcoming.

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CONTACTS

For additional information with respect to this Alert, please contact the following:

Ernst & Young (Australia), Oceania Sector Leader – Wealth & Asset Management, Sydney

• Antoinette Elias
  antoinette.elias@au.ey.com

Ernst & Young (Australia), Sydney

• George Stamoulos
  george.stamoulos@au.ey.com
• Richard Lambkin
  richard.lambkin@au.ey.com

Ernst & Young LLP (United States), Australian Tax Desk, New York

• David Burns
  david.burns1@ey.com

Ernst & Young LLP (United Kingdom), Australian Tax Desk, London

• Naomi Ross
  naomi.ross@uk.ey.com

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ATTACHMENT

PDF version of this Tax Alert