A 2025/1 - Managed Investment Trusts: Restructures to Access the MIT Withholding Regime

The Government announced on 13 March 2025 that it will amend tax laws to ensure only genuine investors can access concessional managed invest trust (MIT) tax rates. In response, a recent taxpayer alert (Alert)[1] from the Australian Taxation Office was released highlighting concerns over certain inward investment restructures that inappropriately seek to access the concessional tax benefits of the MIT withholding regime.  

MITs are important as they make Australian investment products more attractive to global investors, provide tax certainty and efficiency for both fund managers and investors, and are a key part of Australia’s strategy to grow its funds management industry. The Government’s proposed reform will amend the income tax laws to ensure legitimate investors can continue to access concessional withholding tax rates in Australia while strengthening guidelines to prevent misuse.

You can read the full ATO alert here and the Treasury announcement here.

What Is a Managed Investment Trust (MIT) and the MIT Withholding Regime?

A MIT is a type of investment structure in Australia that enables genuine collective investment in primarily passive, income-generating assets, such as property, shares, and fixed-income securities. MITs are commonly used by fund managers to offer investment products to both domestic and international investors.

Key features of a MIT:

• They pool funds from multiple investors to invest in income-producing assets.
• They are publicly held and operated on a commercial basis.
• They must meet specific eligibility criteria under Australian tax law to qualify for concessional tax treatment.

The MIT Withholding Regime is a tax framework that provides concessional withholding tax rates on certain distributions made by eligible MITs to foreign investors. The regime is designed to attract foreign capital by reducing the tax burden on passive investment income.

MIT Eligibility Criteria – Key Considerations for Accountants

To determine whether a trust qualifies as a Managed Investment Trust (MIT) under Australian tax law, the following conditions must be met:[2]

• Managed Investment Scheme (MIS): The trust must be classified as a MIS, [3] typically involving pooled investments managed on behalf of members.
• Widely Held Requirement: The trust must Ahave a broad investor base—either listed on a recognised securities exchange, or comprising at least: 50 unrelated investors for a registered MIS that is a retail trust; or at least 25 unrelated members for either registered or unregistered wholesale trust MIS.
• Closely Held Restrictions: No single investor (excluding certain institutional investors) should hold a significant controlling interest, ensuring the trust is not effectively captive. An MIT that is a registered retail MIS must not have less than 20 persons holding 75% of the participation interests, or less than 10 persons for a wholesale MIS.
• Regulated Management: The trust must be operated or managed by an appropriately regulated entity, such as a holder of an Australian Financial Services Licence.
• Australian Residency or Control: The trust must be centrally managed and controlled in Australia, or have an Australian-resident trustee to satisfy residency requirements.
• Passive Investment Focus: The trust must not engage in or control an active trading business. Its income should primarily be derived from passive sources such as rent, dividends, or interest.
  
  

Emerging Issues Under the MIT Withholding Regime

The alert from the ATO raised concerns about certain restructuring arrangements designed to inappropriately take advantage of MIT tax concessions. These schemes typically involve modifying existing inward investment structures in ways that lack a genuine commercial purpose.

Common Features of Concerning Arrangements:

• Entity Conversion: Transforming non-trust investment vehicles —such as companies that are not Corporate Collective Investment Vehicles —into unit trusts.
• Artificially Broadening Ownership: Introducing multiple unitholders solely to meet the definition of MIS, as single-unitholder trusts do not qualify.
• Management Adjustments: Altering management structures to satisfy the requirements of section 275-35 of the Income Tax Assessment Act 1997.
  
  

Areas of Concern - The ATO is particularly focused on arrangements where:

• The restructure appears unnecessary or lacks commercial substance.
• The restructure is linked to asset disposals or capital gains tax (CGT) planning.
• The trust fails to meet genuine pooling and management requirements.

The ATO is actively reviewing such arrangements, and considering the application of anti-avoidance provisions, including Part IVA.

Recommended Actions for Taxpayers

In light of the ATO’s concerns regarding misuse of the MIT withholding regime, taxpayers are advised to take the following steps:

• Review Existing Structures: Conduct or procure a thorough assessment of current investment and trust arrangements to ensure they align with genuine commercial objectives and comply with MIT eligibility requirements.
• Seek Independent Advice: Engage qualified tax professionals to evaluate any potential risks and provide guidance on compliance with relevant tax laws.
• Disclose High-Risk Arrangements: Proactively disclose any structures that the ATO may consider high-risk or artificial, to mitigate potential penalties.
• Avoid Artificial Restructuring: Refrain from entering into schemes that restructure entities solely to gain access to MIT tax concessions without a legitimate commercial basis.
  
  

What are the Cleardocs products available?

Cleardocs offer the following relevant products:

• Unit Trust Fixed
• Unit Trust Non-Fixed
• Company Registration
• Small Business Bundle
  
  

More information from Maddocks

For more information, contact Maddocks on (03) 9288 0555 and ask to speak to a member of the Commercial team.

More Cleardocs information on related topics

• ASIC – key focus areas for 2025 – Private markets, superannuation and cyber risks
• Federal Government Budget 2025/26: What it means for you
• Bend it like Bendel: How should trustees navigate the ATO’s interim decision impact statement?
  
  
  

[1] Taxpayer Alert TA 2025/1

[2] The ATO summary concerning eligibility requirements can be accessed via the following link: https://www.ato.gov.au/businesses-and-organisations/trusts/in-detail/managed-investment-trusts/managed-investment-trusts-overview/eligibility-requirements

[3] Section 9 of the Corporations Act 2001