New legislation governing the tax treatment of Managed Invests Trusts (MITs) passed through parliament last week. The bill is due to come into effect on July 1 and amends the definition of a MIT which widens the scope of trusts to benefit from taxation concessions available through the capital account and withholding tax arrangements.

Assistant Treasurer Nick Sherry said the revised rules would make Australia more attractive as an investment destination.

The definition of an MIT will be expanded to include a broader range of investment vehicles, including unregistered funds, foreign government pension plans, and sovereign wealth funds, some government vehicles and overseas versions of an MIT. These vehicles will be eligible for withholding tax and capital gains concession. The concessional withholding tax will drop to 7.5% under the new legislation.

The initial draft bill indicated that trusts would have to be managed from Australia to receive tax concessions; this version would have led to a slowing in foreign investment in the sector. There has been an increase in overseas funds, such as Singapore-based K-REIT and Germany’s Dekka Immobilien Investment fund, acquiring Australian assets in the past year. The changes could have been costly for the sector, as trusts shed assets to comply in order to avoid paying the full company tax rate.

The new legislation now requires only Australian assets to be managed locally. Foreign assets can essentially be managed offshore.

It is anticipated that the change would allow Australia to secure more of the world’s investment wealth.