Beneficiary of a managed investment trust

Is the recipient of a fund payment liable to pay managed investment trust withholding tax under subsection 840-805(1) of the Income Tax Assessment Act 1997 (ITAA 1997) where the recipient participated in a capital raising arrangement under a specific capital instrument?

Yes. The recipient of a fund payment is liable to pay managed investment trust withholding tax under subsection 840-805(1) of the ITAA 1997 where the recipient participated in a capital raising arrangement under a specific capital instrument where the terms of the instrument result in the recipient being a beneficiary of the managed investment trust.

A foreign resident (the investor) contributed funds to an Australian unit trust under a capital raising instrument. The investor contributed the funds on their own behalf, and not as trustee of another trust.

The capital raising instrument carries an entitlement to payment of 10% per annum on the face value of the security and payment is at the absolute discretion of the payer.

Under the terms of the capital raising instrument, the investor has a beneficial interest in the trust.

The investor is paid the first payment in relation to the current income year. The payment is a fund payment as defined in subsection 12-405(1) of Schedule 1 to the Taxation Administration Act 1953 (TAA) in relation to the current income year.

At the time that the payment is made: • the trustee of the unit trust is a resident of Australia • the trust is a managed investment scheme (as defined by section 9 of the Corporations Act 2001) • the trust is operated by a financial services licensee (as defined by section 761A of the Corporations Act 2001) whose licence covers operating such a managed investment scheme, and • the units in the trust are listed for quotation in the official list of an approved stock exchange in Australia.

A person is liable to pay managed investment trust withholding tax under subsection 840-805(1) of the ITAA 1997 where subsection 840-805(2) of the ITAA 1997 is satisfied. The requirements of subsection 840-805(2) are: • the person is paid an amount from a trust that is a managed investment trust (as defined in section 12-400 of Schedule 1 to the TAA) in relation to an income year • all or part of that amount is represented by a payment that is a fund payment (as defined in subsection 12-405(1) of Schedule 1 to the TAA) in relation to that year • the person is, in respect of that part, a beneficiary (but not a beneficiary in the capacity of a trustee of another trust), and • the person is a foreign resident when they are paid the amount.

The investor is paid an amount by the unit trust in relation to the current income year.

Unit trust is a managed investment trust in relation to the current income year because, at the time that the payment is made: • the trustee of the unit trust is a resident of Australia • the trust is a managed investment scheme (as defined by section 9 of the Corporations Act 2001) • the trust is operated by a financial services licensee (as defined by section 761A of the Corporations Act 2001) whose licence covers operating such a managed investment scheme, and • the units in the trust are listed for quotation in the official list of an approved stock exchange in Australia.

The payment is a fund payment in relation to the current income year.

The investor is a foreign resident when they are paid the amount.

The investor is a beneficiary of the unit trust. The investor is paid the amount in respect of the capital raising instruments which gives rise to the beneficial interest in the trust; therefore the investor is a beneficiary in respect of the amount paid.

The investor is not paid the amount in the capacity of trustee of another trust.

As all of the requirements of subsection 840-805(2) of the ITAA 1997 are met, the investor is liable to pay managed investment trust withholding tax on the payment under subsection 840-805(1) of the ITAA 1997.