In brief
The Australian Securities and Investments Commission has granted relief to assist responsible entities of registered schemes to make changes to their constitutions to qualify for the new attribution managed investment trust regime without holding a members' meeting. In addition, and in response to submissions from various industry bodies, the Australian Taxation Office has confirmed the deadline by which amendments need to be made for it to treat a trust as having qualified as an AMIT for any part of the income year commencing 1 July 2016. Partner Marc Kemp, Senior Tax Counsel Judith Taylor and Senior Overseas Practitioner James Kanabar review the key elements.
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Key elements
Modifications
The Australian Securities and Investments Commission (ASIC) relief (the instrument commenced from 22 June 2016) will assist responsible entities of registered schemes (REs) to implement the new tax system for management investment trusts (which commenced on 5 May 2016) by allowing them to make the requisite constitutional changes to benefit from the attribution managed investment trust (AMIT) regime without getting member approval. The relief has been drafted broadly to cover amendments that are necessary or incidental to the operation of the scheme in a manner permitted by the AMIT regime (although REs must act reasonably in determining that an amendment is required, and the relief does not provide a blank cheque to make all manner of amendments while circumventing the requirement to seek member approval), and expressly includes amendments:
- permitting REs to elect for the AMIT regime to apply;
- permitting REs to elect for a class of interests in the scheme to be treated as a separate AMIT; and
- ensuring an RE is indemnified out of scheme assets for liability incurred by operating the scheme as an AMIT.
Equal treatment
REs have a duty under s601FC(1)(d) of the Corporations Act 2001 (Cth) to treat members who hold interests of the same class equally, and compliance with this duty may prevent an RE from complying with the concessionary 'under and overs' regime in the AMIT rules. ASIC has therefore granted relief to REs from the duty to treat members of the same class equally, to the extent equal treatment prevents an attribution being made under the new tax system.
Relying on the relief
To rely on the relief, an RE will need to post a statement on the scheme website explaining the intention to amend the constitution, the reasons for doing so, the effect of the proposed amendments and members' right to request a meeting. However, ASIC has provided an RE of a scheme where all interests are held by wholesale clients will not need to publish such a statement where it has taken reasonable steps to consult with each member before amending the constitution. ASIC has previously confirmed that taking reasonable steps includes speaking with the members or emailing them and includes consultation that took place before ASIC’s instrument becoming effective (ie 22 June 2016).
Meeting of members
An RE will need to hold a meeting to approve the proposed amendments by special resolution if members representing 5 per cent or more of the total number of votes that may be cast on that resolution request a meeting within seven days of the RE's statement being posted on the website. If no request is made, the RE will be permitted to amend the constitution without member approval.
ATO PCG
On 22 June 2016, the ATO published Practical Compliance Guideline 2016/9. It had been suggested that, if documentary modifications were required to be made in order for a trust to qualify as an AMIT, those amendments would need to be made by 31 August 2016 in order for the ATO to treat the trust as having qualified as an AMIT for the income year commencing 1 July 2016. Industry bodies made submissions to the ATO that, given the practical difficulties involved for many trusts in changing their constitutions or trust deeds, this policy should be extended to all relevant changes made to constituent documents by 30 June 2017. While the ATO has not fully acquiesced with that suggestion, it has agreed to set a slightly later deadline of 31 October 2016.
What does it all mean?
REs should consider whether to elect for the AMIT regime to apply in relation to one or more of their schemes (see our article in June's edition of Unravelled, which considers some of the reasons an RE might elect for a scheme to be an AMIT).
If so, REs should consider if their scheme constitutions require any amendment to take advantage of the AMIT regime (see our article in June's edition of Unravelled, which summarises the drafting issues to be considered) and, if so, prepare an accompanying statement to be placed on the scheme's website (subject to receipt of a request for a meeting from members representing 5 per cent or more of votes and a simpler regime for schemes with only wholesale clients, in each case as outlined above). The potential to make amendments without the expense of a members' meeting will allow REs to assess the benefits of opting into the AMIT regime without needing to consider the cost of meetings (which would be ultimately borne by the members).
However, ASIC's relief applies only to registered schemes, and trustees of unregistered schemes will need to review the amendment provisions in the trust deed to ascertain whether and by what process the necessary amendments can be made.
If an RE or trustee is required to amend a constitution or trust deed, it should give careful consideration to whether the proposed changes will cause a resettlement of the trust and the implications of any resettlement.
REs should review any constituent amendments carefully, to ensure that they fall within the scope of the ASIC relief.
Finally, if a trustee or RE intends to elect for a trust to be treated as an AMIT for the income year commencing 1 July 2016 and constitutional modifications are required in order for the trust to qualify as an AMIT, those amendments must be made by 31 October 2016.