Transitional Managed Investment Trust Provisions to lapse 30 June 2026

Key implications for and potential responses by Stapled Structures

In just over a month, the seven-year transitional period for the non-concessional MIT income (NCMI) rules will expire. Effective 1 July 2026, withholding tax on the cross-staple rental component of fund payments to foreign investors in certain Managed Investment Trust (MIT) stapled structures will double – from a concessional 15% rate to 30%. Although this direct and immediate impact is sufficiently clear, this article focuses on the practical considerations that affected investors and investees will need to navigate in the lead-up to 30 June 2026.  

Background

The MIT regime was introduced almost two decades ago to attract foreign investment into Australian infrastructure and real estate by providing a coherent, internationally competitive flow-through regime. This was achieved through a 15% final withholding tax rate on certain distributions of passive income to qualifying non-resident investors, supported by clear rules on how MIT gains are taxed and attributed to investors.

In 2019, and effective from 27 March 2018, the Government reformed the MIT regime to address integrity concerns that integrated trading businesses were being fragmented as stapled structures to re-characterise trading income as concessionally-taxed passive income. Specifically, the NCMI rules were enacted to treat rent paid by an operating company to a MIT as ‘non-concessional’ and subject it to a higher 30% rate of withholding tax on distribution to non-resident investors. The introduction of the NCMI rules included a 15-year transitional period for pre-existing ‘economic infrastructure facilities’ approved by the Treasurer (broadly, infrastructure relating to energy, telecommunications and transport, and utilities), and a shorter seven-year transitional period for other pre-existing cross-staple arrangements. Further guidance on the NCMI rules can be found in LCR 2020/2.  

In-scope assets

The cessation of the shorter seven-year period is most likely to capture stapled structures holding ‘operational’ real estate – where there is an underlying property and an underlying business is run from it. Examples include accommodation such as hotels, resorts, retirement villages, student accommodation, and aged care facilities; specialised commercial property such as self-storage facilities, childcare centres and private healthcare facilities; and hospitality and retail such as clubs, pubs and service stations. Facilities of broader economic significance such as toll roads, airports, ports, rail, electricity, water, gas, telecommunications and renewable energy will generally continue under the 15-year transitional period.  

Potential responses 

From 1 July 2026, withholding tax on the affected component of fund payments to foreign investors will double from 15% to 30% and it can be reasonably expected that affected groups will seek to restructure in response. This will necessitate consideration of various practical matters, including from the perspectives of duties and income tax. Those matters are described below. 

Duties

Restructuring responses such as de-stapling, internalising the operating company into the asset trust, or interposing a new head trust all involve dealings with interests in Australian land likely to engage landholder duty, transfer duty and surcharge purchaser duty regimes. There is no harmonised regime: thresholds, rules and the corporate reconstruction concessions / exemptions all differ across jurisdictions, so a multi-jurisdictional analysis may be required.  

A high-level snapshot of the position in the four primary jurisdictions — New South Wales (NSW), Queensland, Victoria and Western Australia (WA) — is set out below. Restructures involving land in South Australia, Tasmania, the Australian Capital Territory or Northern Territory are subject to broadly similar concepts but with their own thresholds and concessions and should be considered separately. 

Income Tax

Beyond the foregoing duty considerations, any restructure will necessitate consideration of various income tax matters, including:  

• CGT events on each step. Each step in a restructure — disposing of units in the asset trust, transferring the operating company, or transferring the underlying facility — will likely constitute a CGT event. For non-resident investors, an event otherwise outside the Australian CGT net may become assessable where the principal asset test is satisfied.
• Availability of roll-over relief. Roll-over provisions may defer the CGT consequences of particular steps (including the Subdivision 124-Q roll-over for interposing a unit trust over a stapled group, the Subdivision 124-M scrip-for-scrip roll-over, Division 615 where a company is interposed, and tax consolidation entry roll-overs under Division 705). Each has specific conditions — particularly identical proportional interests pre- and post-restructure — that may not be satisfied where the upstream investor profile is being reorganised.
• Non-resident CGT withholding. A 15% withholding may arise on disposals of taxable Australian property by foreign residents, including disposals of significant interests in landholding trusts. Even where the substantive CGT is rolled over, the withholding may still affect the restructure’s cash flow profile. Affected groups will also need to be cognisant and consider the implications of recently published draft legislation impacting the non-resident CGT regime, including the definition of ‘real property’ and the operation of the principal asset test thereunder, as well as other administrative matters such as a pre-transaction notification regime for non-resident disposals with an aggregated value of greater than $50m.
• Preservation of MIT eligibility. The restructured group must continue to satisfy MIT eligibility, the cost of failing which extends well beyond the 15% concessional withholding rate. Where the trust is an AMIT, loss of MIT status also terminates Division 276 benefits – including the Subdivision 104-J cost base adjustments and the unders/overs reconciliation regime. More fundamentally, if the restructured asset trust is treated as controlling or operating a trading business — a real risk where the staple's asset/operations boundary is being deliberately re-permeated — it may be taxed as a public trading trust under Division 6C of Part III ITAA 1936, converting the trust to corporate-style taxation and disabling flow-through treatment entirely.
• Trust resettlement. Material changes to a trust’s structure can give rise to trust resettlement issues (a deemed disposal of all trust assets). The Australian Taxation Office’s (ATO) published guidance (TD 2012/21) has largely settled this in favour of taxpayers for routine restructures, but it remains a point to be confirmed for substantial changes.

Practical action plan 

For affected groups seeking to restructure in advance of 1 July 2026, the following three broad workstreams will need to be carefully managed:

• Minimising duty cost. Lodge pre-approval corporate reconstruction or corporate consolidation applications with each relevant state revenue authority before any restructure step is taken. In NSW sequence the restructure to minimise the number of dutiable steps, as each step incurs the concessional 10% duty. In Queensland and WA, confirm that the pre and post-association requirements (typically three years pre-association and one year post-association in Queensland, and three years’ post-association in WA) are satisfied for each step before relying on the full duty exemption. Where the structure holds residential land, test foreign purchaser surcharge duty exposure separately for any residential land — the corporate reconstruction concession does not relieve surcharge
• Managing income tax cost. Confirm income tax roll-over eligibility before any step that would crystallise a CGT event, and consider seeking an ATO private ruling where the conditions are not clearly met. Confirm that the restructured group will continue to satisfy the MIT eligibility conditions.
• Engaging lenders and investors.  Engage existing lenders early to obtain required consents and to refinance where necessary. Communicate the restructure timeline and post-restructure distribution profile to investors, and update applicable disclosure documents. 

Where this leaves affected groups

30 June 2026 is the most important date in the MIT calendar for affected stapled groups since the 2019 reforms commenced. The cost of doing nothing is a doubling of withholding on the affected component of fund payments to foreign investors. The cost of responding is more complex, running across both income tax and state tax dimensions and across multiple jurisdictions. 

On the income tax side, each step in a restructure is potentially a CGT event, and the available roll-overs — Subdivision 124-Q for interposing a unit trust over a stapled group, Subdivision 124-M scrip-for-scrip, Division 615 where a company is interposed, and Division 705 tax consolidation entry — each carry conditions that may fail where the upstream investor profile is being reorganised concurrently; non-resident CGT withholding may affect cash flow even where the substantive CGT is rolled over; and the most consequential risk is loss of MIT status, particularly exposure to public trading trust taxation under Division 6C if the restructured asset trust is treated as controlling or operating a trading business.  

On the state tax side, the duty cost varies dramatically — from a 90% concession (i.e. duty at 10% of the amount otherwise payable) in NSW and Victoria to a full exemption in WA, Queensland and other jurisdictions — but the conditions to access those concessions (pre- and post-association requirements in Queensland and WA, current multi-step duty incidence in NSW, Victoria's economic entitlement rule, and WA's treatment of fixed-infrastructure rights as land) effectively dictate restructure design as much as duty cost itself, and the corporate reconstruction concession does not relieve foreign-purchaser surcharge duty on any residential landholding.  

Against that backdrop, affected groups should now be modelling both the "do nothing" withholding cost and the all-in restructure cost (duty across every relevant jurisdiction, any non-rollover-eligible CGT cost, and non-resident CGT cash flow impacts); designing the restructure pathway with explicit attention to preserving MIT eligibility and avoiding the Division 6C trigger; lodging pre-approval applications with each state revenue authority concerned and considering an ATO private ruling on any income tax question lacking clear authority; and engaging lenders and foreign investors early — pre-approval lead times in some jurisdictions are measured in months and ATO private rulings can take longer, so groups that have not yet started this workstream should do so now. 

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