Distributions rules for Australian domiciled unit trusts will change under the tax proposals unveiled last week by Prime Minister John Howard.
Under the proposals distributions from unit trusts will be taxed before they are paid to unit holders, as is the case in New Zealand.
Currently Australian unit trusts distribute all their taxable income to investors, who then pay tax on the distributions at their own marginal tax rates.
As part of the changes trusts will be taxed at the same rate as companies, which is 36 per cent, however the proposals include dropping the rate to 30 per cent.
The wide ranging tax reforms also include a tax credit system, similar to New Zealand's imputation regime.
It will allow for unit holders to receive, in addition to the distribution, a credit for tax the trust has already paid.
However, these franking credits may be useless to New Zealand investors, one industry source says.
For taxpayers on marginal rates lower than the trust rate, the tax credit can be used to offset the tax payable on income from other sources. If an investor does not have enough 'other' tax to use up all their credits, they will receive a refund.
Taxpayers on marginal rates higher than the trust rate will have to pay the difference between the trust rate and their marginal rate.
These proposals will only be introduced if the Howard government is re-elected. It is proposed these particular changes would be introduced on June 30, 2000.
Distributions rules for Australian domiciled unit trusts will change under the tax proposals unveiled last week by Prime Minister John Howard.