This notice relates to proposed constitution amendments for the Affluence Investment Fund (ARSN 617 680 654) (“AIF”).
Affluence Funds Management Limited (“Affluence”) has published this notice under notional subsection 601GCA(3) of the Corporations Act 2001 (Cth) as modified by ASIC Corporations (Attribution Managed Investment Trusts) Instrument 2016/489.
The notice has been published to inform investors in AIF of proposed amendments to be made to the Constitution of AIF (“Constitution”). The proposed amendments would allow AIF to operate under the new Attribution Managed Investment Trust (“AMIT”) income tax regime (“AMIT regime”) if an election to do so is made by Affluence.
The AMIT regime for managed investment trusts was recently enacted under the Tax Laws Amendment (New Tax System for Managed Investment Trusts) Act 2016 (Cth). The key feature under the AMIT regime is that unitholders of relevant trusts are taxed on income from the trust attributed to them by the trustee/responsible entity on a fair and reasonable basis.
Under the current taxation rules under Division 6 of the Income Tax Assessment Act 1936 (Cth) unitholders who are presently entitled to trust income are subject to income tax on their proportionate share of the taxable income of the Trust.
AIF is eligible to qualify as an AMIT and to enter into the AMIT regime. The potential benefits of adopting the AMIT regime are outlined further below.
As the responsible entity/trustee of AIF, Affluence is yet to decide whether AIF should elect into the AMIT regime, although it is considered likely that AIF will do so. An election for AIF to be an AMIT is irrevocable. Affluence will decide whether to elect into the AMIT regime based on the best interests of investors as a whole. If an election is made, Affluence will inform investors at that time.
A summary of the reasons for, and effect of, the proposed modifications to the Constitution is set out below.
Reasons for proposed Constitution amendments
If implemented, the proposed Constitution amendments would allow Affluence to choose to adopt the AMIT regime for AIF. Affluence believes the potential benefits of operating under the AMIT regime include:
- Greater certainty associated with the AMIT regime attribution of taxable income to investors compared to the current “present entitlement” tax regime.
- Greater certainty as to the tax status of AIF and its entitlement to certain tax concessions including deemed “fixed trust” status for tax purposes.
- Reduced potential for double taxation by allowing for cost base adjustments where distributions are less than the taxable income assessed to the investor.
- Preservation of the character of the income for income tax purposes in the hands of the investor.
- Provision of the ability to reconcile “under” and “over” estimations of net income of AIF to allow adjustments in the year they are discovered rather than the approach under the current law that requires amendments to investors previously lodged income tax returns.
As the AMIT regime has only recently been enacted, there may be some uncertainty regarding certain aspects of the AMIT regime operation in the initial years.
Effect of proposed Constitution amendments
Set out below is a summary of the effect of the proposed Constitution amendments. Affluence as responsible entity/trustee of AIF reasonably considers that the modifications are necessary for, or incidental to, AIF being able to be operated in a manner permitted by the AMIT regime as an AMIT with Affluence as its trustee.
Definitions
Specific definitions relevant for the AMIT regime will be inserted into clause 1.1. The definitions of these specific terms have been drafted consistently with the Tax Act to preserve the intended flexibility of the legislation.
Powers in relation to AMIT
A new clause 15.7 will be inserted in the Constitution to ensure the responsible entity has all powers necessary to adopt into the AMIT regime including doing all things necessary to give effect to the proposed clause 30A.
Recoveries – Holders’ liabilities
A new paragraph (e) will be inserted to clause 29.1 to clarify that any fees, Taxes and costs incurred in relation to “Attribution Amounts” (as defined) are the liability of each unitholder.
Distributions – Application
A new clause 30.1A will be inserted to “switch off” clause 30 when AIF elects to be an AMIT. In particular, it switches off the distribution and present entitlement requirements when AIF is an AMIT. Clause 30 is relevant to Division 6 of the Income Tax Assessment Act 1936 (Cth).
AMIT
A new clause 30A will be inserted which contains the general powers for the responsible entity to comply with the new AMIT rules.
Clause 30A.1 provides the responsible entity with the discretion to choose to apply the AMIT rules.
Clause 30A.2 determines the period that AIF is an AMIT.
Clause 30A.3 allows the responsible entity to attribute Attribution Amounts in accordance with the Constitution. This is a feature of the new AMIT rules. The definition utilises terminology consistent with the applicable Tax Act (as defined) to allow flexibility to attribute amounts of different character.
Clause 30A.3(b) provides a discretion for the responsible entity to distribute any amount of income or capital of AIF to unitholders.
Clause 30A.3(c) provides that any taxes paid or remitted on behalf of a unitholder are taken to be made for that unitholder.
Clause 30A.3(d) confers specific powers on the responsible entity to issue and amend “AMMA Statements” (as defined) to unitholders.
Clause 30A.3(e) facilitates the exercise of the responsible entity’s powers in relation to “unders and overs” as permitted in the AMIT regime.
Clause 30A.3(f) limits the responsible entity’s liability to the unitholder in making choices and complying with the AMIT rules.
Unitholder Objections
Proposed clause 30A.4 provides steps to ensure that should a unitholder object to an attribution as afforded under the AMIT regime, the unitholder must give notice and provide information to the responsible entity and the unitholder must meet all costs or liabilities incurred by the responsible entity associated with the process of acknowledging the objection and assessing the impact on other unitholders.
Further, each unitholder indemnifies the responsible entity for any tax payable by the responsible entity in complying with the AMIT rules that reasonably relates to the unitholder.
How to contact us if you wish to respond to this notice
Affluence will proceed with the proposed Constitution amendments on or after the date which is 7 days from the date of this notice, unless it receives requisitions to call and arrange a meeting of AIF unitholders to consider and vote on a special resolution to make the proposed Constitution amendments, from unitholders with at least 5% of the votes that may be cast on the resolution.
Unitholders are not required to respond to this notice, but should a unitholder wish to request a meeting of AIF unitholders to vote on the proposed Constitution amendments set out in this notice, the unitholder must send a request to Affluence by 5pm (AEST) on Friday, 9 June 2017. A written request may be sent by email to invest@affluencefunds.com.au.
Unless requests by AIF unitholders with at least 5% of the votes that may be cast on the resolution, to call and arrange to hold a meeting a meeting of AIF unitholders are received by 5pm (AEST) on Friday 9 June 2017, Affluence will proceed to make the proposed Constitution amendments by executing a supplemental deed to the Constitution and lodging it with the Australian Securities and Investments Commission.
If you have any questions about any aspect of this notice, you can contact us by calling 1300 233 583 or email invest@affluence.com.
