In Australia, trusts are a popular vehicle for groups of investors to collectively invest in passive assets. For tax purposes, trusts are considered ‘flow-through’ entities, meaning they are typically not subject to income tax if all profits are distributed to beneficiaries or unitholders each year.

However, when a trust distributes income to foreign beneficiaries, it must withhold tax on those distributions at the applicable withholding tax rates. These rates can be as high as 30% for foreign companies and 45% for foreign individuals and trusts.

Concessional withholding regime for MITs

To assist with attracting foreign capital and building out Australia’s funds management regime, there are entities called Managed Investment Trust Structures (MITs) which can receive concessional tax treatment.

Under Division 275 of the Income Tax Assessment Act 1997 (the 1997 Act), trusts that qualify as MITs can access certain key tax concessions, including:

  • Concessional MIT withholding rates of 15% or 30% on ‘fund payments,’ depending on whether the foreign beneficiary resides in a country with an exchange of information agreement with Australia;
  • MIT CGT election, allowing certain assets to be treated as capital assets for tax purposes.

For a trust to qualify as an MIT in a given income year, it must meet several eligibility requirements such as being widely held and operated by a trustee with an Australian Financial Services Licence (AFSL). These requirements are designed to ensure that the trust is a genuine collective investment vehicle.

Given the significant potential tax benefits for investors under an MIT structure, the Australian Taxation Office (ATO) is increasingly wary of potentially contrived structuring arrangements.

Recent ATO Taxpayer Alert on MIT structures

On 7 March 2025, the ATO released its first Taxpayer Alert for 2025 (TA 2025/1), focusing on the restructuring of MITs in a way that take advantage of the concessional MIT withholding regime. This alert signals that the ATO will closely examine MIT restructures that aim to exploit these tax benefits.

TA 2025/1 provides examples of restructure arrangements that will attract the ATO’s attention, which may include:

  • Restructures connected to a disposal of trust property or assets held by underlying entities controlled by the trust;
  • Non-commercial restructuring to introduce an Australian unit trust into an inward investment structure; or
  • Changes in internal arrangements resulting the management of the trust being provided by an entity that meets the licensing requirements for unregistered managed investment schemes.

Entities involved in such restructures will need to demonstrate a legitimate commercial rationale and show that the changes were not designed to improperly benefit from MIT tax concessions.

It may be possible for the ATO to identify these restructures in several ways, including submissions to the Foreign Investment Review Board (FIRB) and certain tax return disclosures.

Recent government announcements

On 13 March 2025, a media release from the Assistant Treasurer and Minister for Financial Services, The Hon Stephen Jones MP, announced upcoming amendments to income tax legislation in relation to MITs. These changes aim to eliminate confusion surrounding the use of MITs and introduce stronger guidelines to prevent misuse, while preserving the current industry practices and understanding regarding their operation.

The key amendment will clarify that trusts that are ultimately owned by a single widely held investor (e.g. a foreign pension fund) will continue to be eligible for MIT concessions. This change is designed to ensure that legitimate investors can maintain access to concessional withholding tax rates in Australia under the MIT framework.

This announcement was further reinforced in the 2025-26 year Federal Budget announcements.

Key takeaways

Given the ATO’s increased scrutiny, as demonstrated by TA 2025/1, we recommend that organisations engage with their tax advisors before restructuring or establishing MITs as these arrangements need to ensure that the commercial rationale behind the restructure is appropriately documented.

Existing MITs should also notify their advisers when anticipating significant new investment or considering changes to licensing arrangement.

This article was co-written by Jordan Phung, Senior Manager at HLB Mann Judd Melbourne