Australian Ethical High Conviction Fund
Proposed Constitution amendments to facilitate adoption of the Attribution Managed Investment Trust regime for the Fund.
Notice under section 601GCA(3)(b) of the Corporations Act 2001 (Cth)
The Australian Ethical High Conviction Fund ARSN 653 076 236 (Fund) is potentially eligible to be an Attribution Managed Investment Trust (AMIT) and to apply the income tax regime for managed investments trusts enacted by the Tax Law Amendment (A New Tax System for Managed Investment Trusts) Act 2016 (Cth) (AMIT Regime).
Australian Ethical Investment Ltd as responsible entity of the Fund (Australian Ethical) has published this notice under subsection 601GCA(3)(b) of the Corporations Act 2001 (Cth) as modified by ASIC Corporations (Attribution Managed Investment Trusts) Instrument 2016/489 to notify unitholders of proposed modifications to be made to the Constitution of the Fund (Constitution) to allow the Fund to operate under the AMIT Regime.
The AMIT Regime aims to provide greater certainty and flexibility than the pre-existing rules in relation to the taxation position for a managed investment trust (MIT) and its unitholders.
A key difference between the AMIT Regime and the pre-existing tax regime which applies to a MIT is that under the AMIT Regime, unitholders are taxed on the taxable income that is "attributed" to unitholders by the responsible entity. The AMIT Regime requires the responsible entity to undertake this attribution on a fair and reasonable basis, consistent with the unitholder's rights under the MIT's constituent documents and the duties of the trustee. By contrast, the pre-existing rules generally provide for unitholders to be subject to tax to the extent, proportionately, that each unit holder is "presently entitled" to the income of the Fund according to complex trust law principles.
The AMIT Regime may provide the following potential benefits for unitholders of an AMIT compared to the pre-existing tax regime.
- Greater certainty on the tax treatment of distributions and the character of income and capital of the AMIT. This includes reducing the potential for double taxation that may arise for unitholders where there are mismatches between the amount distributed and the taxable income of the MIT.
- An AMIT can carry forward certain understatements and overstatements of taxable income and deal with them in the year in which they are discovered, which removes the requirement to re-issue amended investor statements and amend tax lodgements.
- An AMIT will be deemed to be a "fixed trust" and unitholders will be treated as having vested and indefeasible interests in the income and capital of the AMIT throughout the income year. This generally makes it easier to satisfy the tax rules for (i) carrying forward and utilising trust losses, and (ii) flowing franking credits to unitholders.
- A unitholder can be entitled to make upward adjustments to the cost base of their units in an AMIT if the unitholder receives a distribution amount that is less than their attributed share of the taxable trust components.
How to contact us if you wish to respond to this notice
Australian Ethical 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 unitholders of the Fund to consider and vote on a special resolution to modify the Constitution as proposed 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 unitholders of the Fund to vote on the amendments to the Constitution as proposed in this notice, the unitholder must send a request to Australian Ethical by 5pm (AEST) on 28 September 2022. A written request may be sent by email to firstname.lastname@example.org.
Australian Ethical 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 unitholders 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 28 September 2022.
Effect of the changes to the Constitution
Set out below is a summary of the effect of the proposed modifications to the Constitution. Australian Ethical, as responsible entity of the Fund, reasonably considers that the modifications are necessary for or incidental to the Fund being able to be operated in a manner permitted by the AMIT Regime as an AMIT with Australian Ethical as its responsible entity.
Summary of amendments to the Constitution of the Fund
Distributable Income and distributions
A new clause 16.4 has been inserted which contains the provisions for the Responsible Entity to:
Payment of distributions
A new clause 16.5 has been inserted which contains the provisions for the Responsible Entity to arrange for the payment of any amounts determined to the unitholders.
Power to accumulate or defer amounts
A new clause 16.6 has been inserted to provide for the Responsible Entity to exercise discretion to accumulate and not distribute an amount to unitholders for an AMIT income year.
Distribution reinvestment arrangements
A new clause 16.7 has been inserted to provide for a unitholder to elect to reinvest some or all of any distribution payable subject to approval of the Responsible Entity.
Additional incidental changes have been made to the Constitution to facilitate the amendments, for example, to include specific definitions referable to the AMIT Regime in clause 1.1 ("Definitions") of the Constitution.