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Australia’s 2025–26 Federal Budget, delivered on March 25, places a strong focus on tax compliance and refining investment-related tax regimes. While much attention has gone to cost-of-living relief, several significant changes for foreign investors, managed investment trusts (MITs), and multinational corporations were also announced.
Here’s what taxpayers and businesses need to know.
1. Tightening the Managed Investment Trust (MIT) Regime
The government is moving to clarify and protect the integrity of Australia’s concessional MIT withholding tax framework. Under current rules, foreign investors can access a 10% or 15% final withholding tax on fund distributions from eligible MITs—depending on the type of trust and investor jurisdiction.
To qualify, MITs must meet strict definitions under the Corporations Act 2001, including the requirement for pooled contributions—typically interpreted as having at least two members.
However, concerns have emerged about the misuse of these rules through “captive” MIT structures, where trusts are effectively controlled by a single foreign investor despite technically meeting the pooling requirement. In response, the Australian Taxation Office (ATO) issued Taxpayer Alert TA 2025/1, flagging potential abuse and warning that such structures may fall afoul of the general anti-avoidance rules under Part IVA of the Income Tax Assessment Act 1936.
The Budget confirms that legislation will be introduced to close loopholes, specifically targeting improper restructures while protecting access for legitimate, widely-held foreign investors such as pension funds. These changes will apply retrospectively from March 13, 2025.
Impacted parties:
- Foreign-backed MITs with a single ultimate investor
- Fund managers using complex trust restructures to qualify for MIT concessions
Action item:
Review trust structures and monitor developments closely. Await draft legislation for clarity on how the revised MIT rules will be applied.
2. Delay in Clean Building MIT Extension to Data Centres and Warehouses
The Budget also delays the extension of the 10% clean building MIT concession to data centres and warehouses. Initially planned for July 1, 2025, this change will now commence on the first quarterly date after the enabling legislation receives royal assent.
Though previously announced in the 2023–24 Budget, the government has yet to release draft legislation. Stakeholders in commercial real estate and infrastructure investing should remain alert for further updates.
3. Deferral of Foreign Resident CGT Measures
The long-awaited changes to Australia’s foreign resident capital gains tax (CGT) regime have also been pushed back.
First proposed in the 2024–25 Budget, these measures aim to broaden the CGT net on non-residents. Key features include:
- Expanding the asset scope to include those with a “close economic connection” to Australian land
- Moving from a “point-in-time” asset test to a 365-day testing period
- Requiring pre-transaction ATO notification for share disposals exceeding A$20 million
The start date is now deferred until the first January 1, April 1, July 1, or October 1 following royal assent of the legislation.
What this means for foreign investors:
You have more time to assess and prepare for these rules, but you’ll still need to stay vigilant. Once enacted, these changes could significantly expand tax exposure for cross-border asset disposals.
4. A$999 Million Boost to ATO’s Tax Compliance Efforts
The ATO is getting a nearly A$1 billion funding boost over four years to enhance compliance and audit activities. This is particularly targeted at multinational corporations and large taxpayers.
This investment signals an intensified enforcement environment, especially around:
- Transfer pricing
- Cross-border financing arrangements
- Large-scale restructures and deductions
Advice to taxpayers:
Now is the time for large companies to double-check their documentation, ensure transparency in their tax affairs, and be ready for potential ATO review activity.
5. Other Unresolved Measures Still in Limbo
Despite providing updates on several key tax initiatives, the Budget did not advance the following previously proposed reforms:
- New definitions of corporate and individual tax residency
- Penalty regimes for mischaracterised royalties, interest, and dividends
- Broader expansion of anti-avoidance legislation
These remain on the government’s radar, but stakeholders will need to wait for further developments.
A Watch-and-Wait Year for Investors and Taxpayers
Australia’s 2025–26 Budget reinforces the government’s focus on tax integrity, particularly for foreign investors and multinationals. While many measures are in draft or deferred stages, the direction is clear—tightened compliance, clarified rules, and increased scrutiny.
For now, businesses should review their structures, prepare for reforms, and stay engaged as legislation is rolled out.
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