Australia: Putting out the welcome mat to foreign pension and sovereign wealth funds - MIT withholding tax changes

In keeping with its goal of encouraging more foreign investment into Australia, the Federal Government will change existing laws to ensure foreign pension and sovereign wealth funds can access the Managed Investment Trust (MIT) withholding tax regime.

In summary, the regime allows a MIT to make payments to non-residents at concessional withholding tax rates, offering an attractive Australian investment option for foreign funds where they and their members are ultimately based overseas.


The use of MITs in Australia is growing rapidly. In the superannuation industry alone, the value of savings under management has exploded from $183 billion in 1993 to $1.5 trillion today. 1

As at 1 January 2010, 17.6% of all inflows to Australian MITs came from foreign pension and sovereign wealth funds. By 31 December 2011, this figure had grown to 26%.


In the 2007/08 Federal Budget, the Government introduced a concessional withholding tax rate with a view to developing Australia as a regional financial services hub. It initially set the withholding tax rate at 30%. In the 2008/09 Budget, the Treasurer announced the rate would be reduced to 7.5%. The goal in reducing the rate was to promote foreign investment into MITs in Australia.

As part of the 2012/2013 Federal Budget, the Government revised the withholding tax rate for MITs and increased it to 15% for payments from 1 July 2012.

Where a foreign trust (such as a foreign pension or sovereign wealth fund) can satisfy the relevant requirements under the tax laws for MITs, it can qualify for the concessional tax treatment.

However, since its inception in 2008, the major hurdle for these offshore funds looking to invest in Australian has been the law itself. The law has prevented offshore funds from obtaining the concessional rate because of a technicality and gap in the drafting of the law.

The gap arises because of the way the MIT tax laws are expressed to exclude beneficiaries acting in their capacity as trustees of another trust (as most foreign pension and sovereign wealth funds are taken to be when they invest as institutional investors in an Australian MIT). This was confirmed by an ATO Interpretative Decision in August 2012.


The ATO set out the situation for a typical foreign pension fund. The fund is usually formed for the purpose of providing a benefit to non-residents (the members of the fund being overseas) and these foreign funds usually pool their assets together to form an investment trust. When the foreign fund invests in a MIT, it does so as a trustee of the foreign fund and it is characterised as a beneficiary of the MIT.

In such cases, the ATO confirmed that the tax laws act to exclude those funds that are beneficiaries acting in their capacity as a trustee of another trust. As a result, the ATO decision resolved that all foreign pension funds and sovereign wealth funds were required to pay the full withholding tax rate of 45%.


The ATO's decision was met with intense criticism and was considered to be at odds with Government policy that sought to encourage foreign investment in Australia and the flow of capital across the globe.

As a result, on 13 February 2013 the Assistant Treasurer announced that the Government will amend the income tax laws to ensure foreign pension funds can access the withholding tax regime for MITs. 2

The amendments are intended to apply retrospectively, back to when the regime began on 1 July 2008.


Although the particulars of the amending legislation are yet to be determined, the Government is confident the amendment will overcome the concerns raised by industry and help stimulate what the original regime intended – the flow of capital from foreign pension and sovereign wealth funds into investment trusts in Australia.

The property sector has already welcomed the Government's response to the ATO decision with the Property Council of Australia issuing a press release to coincide with Government's announcement on 13 February 2013.

Assuming the legislation is amended, it will remedy this anomaly for foreign trusts, meaning the concessional tax rate (currently 15%) will generally be available to foreign pension funds and sovereign wealth funds looking to invest in Australian MITs.


1 Australian Bureau of Statistics: ABS 6291.0.55.003

2 Treasury. (13 February 2013) "Ensuring Foreign Pension Funds can access the Managed Investment Trust Withholding Tax Regime". Media Release No. 012.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Most awarded firm and Australian deal of the year
Australasian Legal Business Awards
Employer of Choice for Women
Equal Opportunity for Women
in the Workplace (EOWA)

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions