From our experience, unit trusts remain the most popular collective investment entity used to invest in Australian real property and infrastructure projects. Since 2008, MITs have been predominantly used by foreign investors investing in this sector.
Given the movement in the MIT withholding tax rate since 2008, care should be taken to apply the correct rate of MIT withholding on 'fund payments' made to a non-Australian investor.
For MIT fund payments made by a unit trust with a 30 June year end, the final withholding tax rate applicable to MIT distributions (other than distributions of dividends, interest and royalties) to non- Australian investors resident in a country with which Australia has an Exchange of Information (EOI) Agreement are:
- from 1 July 2008 to 30 June 2009, 22.5 percent
- from 1 July 2009 to 30 June 2010, 15 percent
- from 1 July 2010 to 30 June 2012, 7.5 percent
- from 1 July 2012, the rate of tax on MIT distributions is:
- 10 percent for MITs that only invest in energy efficient office buildings, hotels and shopping centre buildings that commence construction after 30 June 2012
- 15 percent for all other MITs.
Careful consideration should be given where 'fund payments' are distributed by a MIT to another Australian trust (ie 'Other Entity') before it is ultimately distributed to the non-Australian investor and the MIT has a different year-end to the Other Entity.
If you have any questions on the applicable rate of MIT withholding applicable to you, please contact me.