16 March 2017
PROPOSED CONSTITUTION AMENDMENTS TO FACILITATE ADOPTION OF THE ATTRIBUTION MANAGED INVESTMENT TRUST (AMIT) REGIME
NOTICE PURSUANT TO SECTION601GCA OF THE CORPORATIONS ACT
Cromwell Phoenix Opportunities Fund (ARSN 602 776 536) (“Trust”) is eligible to be an Attribution Managed Investment Trust (“AMIT”) and to apply the new income tax regime for managed investment trusts that was recently enacted under the Tax Laws Amendment (New Tax System for Managed Investment Trusts) Act 2016 (Cth)(“AMIT regime”). The key feature under the AMIT regime is unit holders are taxed on income from the Trust attributed to them by Cromwell Funds Management Limited (“CFM”) (ABN 63 114 782 777) on a fair and reasonable basis. Under the current taxation rules under Division 6 of the Income Tax Assessment Act 1936 (Cth) unit holders who are presently entitled to trust income are subject to income tax on their proportionate share of the taxable income of the Trust. The potential benefits of adopting the AMIT regime are outlined further below. An election by CFM for the Trust to be an AMIT is irrevocable.
As the responsible entity of the Trust, CFM is yet to decide whether the Trust should elect into the new AMIT regime. CFM has published this notice under notional subsection 601GCA(3) of the Corporations Act 2001 (Cth) as modified by ASIC Corporations (Attribution Managed Investment Trust) Instrument 2016/489 to inform unit holders of proposed modifications to be made to the Constitution of the Trust (“Constitution”) to allow the Trust to operate under the AMIT regime if an election is made. CFM will decide whether to elect into the AMIT regime based on the best interests of the unit holders as a whole. If an election is made, the Trust will inform unit holders accordingly.
A summary of the effect of the proposed modifications to the Constitution is set out below.
Reasons for proposed amendments to the Constitution
If implemented, the proposed amendments would allow CFM to choose to adopt the AMIT regime to the Trust. CFM believes the potential benefits of operating under the AMIT regime include:
- Greater certainty associated with the AMIT regimes attribution of taxable income to unit holders compared to the current “present entitlement” tax regime.
- Greater certainty as to the tax status of the Trust 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 unit holder.
- Preservation of the character of the income for income tax purposes in the hands of the unit holder.
- Provision of the ability to reconcile “under” and “over” estimations of net income of the Trust to allow adjustments in the year they are discovered rather than the approach under the current law that requires amendments to unit holders 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 regimes operation in the initial years.
How to contact us if you wish to respond to this notice
CFM will proceed to modify the Constitution as proposed 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 unit holders of the Trust to consider and vote on a special resolution to modify the Constitution as proposed from unit holders with at least 5% of the votes that may be cast on the resolution.
Unit holders are not required to respond to this notice, but should a unit holder wish to request a meeting of unit holders of the Trust to vote on the amendments to the Constitution as proposed in this notice, the unit holder must send a request to CFM by 5pm (AEST) on Friday, 24 March 2017. A written request may be sent by email to firstname.lastname@example.org.
CFM will modify the Constitution by executing a supplemental deed to the Constitution and lodging it with the Australian Securities and Investments Commission, unless a meeting of unit holders is requested by unit holders with at least 5% of the votes that may be cast on the resolution to call and arrange to hold a meeting by 5pm (AEST) on Friday, 24 March 2017.
Effect of amendments to the Constitution
Set out below is a summary of the effect of the proposed modifications to the Constitution. CFM as responsible entity of the Trust reasonably considers that the modifications are necessary for or incidental to the Trust being able to be operated in a manner permitted by the AMIT regime as an attribution managed investment trust with the CFM as its trustee.
Summary of Amendments to the Constitution of Cromwell Phoenix Opportunities Fund
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 are the liability of each unit holder.
Distributions - Application
A new clause 30.1A will be inserted to “switch off” clause 30 when the Trust elects to be an AMIT, in particular it “switches off” the distribution and present entitlement requirements when the Trust is an AMIT. Clause 30 is relevant to Division 6 of the Income Tax Assessment Act 1936 (Cth).
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 the trust is an AMIT.
Clause 30A.3 allows the Responsible Entity to attribute “Attribution Amounts” (as defined) in accordance with the Constitution, this is a feature of the new AMIT rules. The definition utilises consistent terminology 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 the Trust to unit holders.
Clause 30A.3(c) provides that any taxes paid or remitted on behalf of a unit holder are taken to be made for that unit holder.
Clause 30A.3(d) confers specific powers on the Responsible Entity to issue and amend “AMMA Statements” (as defined) to unit holders.
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 unit holders in making choices and complying with the AMIT rules.
Unit holder Objections
Proposed clause 30A.4 provides steps to ensure that should a unit holder object to an attribution as afforded under the AMIT regime the unit holder must give notice and provide information to the Responsible Entity and the unit holder 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 unit holders.
Further, each unit holder indemnifies the Responsible Entity for any tax payable by the Responsible Entity in complying with the AMIT rules that reasonably relates to the unit holder.
Incidental amendments will include inserting into clause 1.1 specific definitions relevant for the AMIT regime in 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.
Cromwell Funds Management Limited ABN 63 114 782 777 AFSL 333214 (“CFM”) has prepared this notice and is the responsible entity of, and the issuer of units in, the Cromwell Phoenix Opportunities Fund ARSN 602 776 536 (“Fund”). In making an investment decision in relation to the Fund, it is important that you read the product disclosure statement dated 17 April 2015 (“PDS”). The PDS is issued by CFM and is available from www.cromwell.com.au/pof or by calling Cromwell Investor Services on 1300 276 693. Applications for units in the Fund can only be made on the application form accompanying the PDS. This notice has been prepared without taking into account your objectives, financial situation or needs. Before making an investment decision, you should consider the PDS and assess, with or without your financial or tax adviser, whether the Fund fits your objectives, financial situation or needs. CFM and its related bodies corporate, and their associates, do not receive any remuneration or benefits for the general advice given in this notice. If you acquire units in the Fund, CFM and certain related parties may receive fees from the Fund and these fees are disclosed in the PDS.
Phoenix Portfolios Pty Ltd ABN 80 117 850 254 AFSL 300302 (“Phoenix”) is the investment manager of the Fund. None of CFM, Phoenix, nor their related entities, directors or officers makes any promise or representation, or gives any guarantee as to the success of the Fund, distributions, the amount you will receive on withdrawal, your income or capital return or the tax consequences of investing.
Please note: Any investment, including an investment in the Fund, is subject to risk. If a risk eventuates, it may result in reduced distributions and/or a loss of some or all of the capital value of your investment. See the PDS for examples of key risks. Past performance is not a reliable indicator of future performance. Forward-looking statements in this notice are provided as a general guide only. Capital growth, distributions and tax consequences cannot be guaranteed. Forward-looking statements and the performance of the Fund are subject to the risks and assumptions set out in the PDS.