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Australia: Integrity measures impacting stapled structures, managed investment trusts and foreign investors


In a widely anticipated and important announcement, on March 27 2018, the Australian Treasurer, Scott Morrison, outlined a range of integrity measures to: (i) Tighten the rules on stapled structures; (ii) Limit certain tax concessions for foreign pension funds and foreign governments (including sovereign wealth funds); and (iii) Restrict thin capitalisation.

The government has been particularly concerned about the growth in stapled structures and more specifically the ability of a broad range of foreign investors to access the 15% managed investment trust (MIT) withholding tax concession by converting perceived active business income to passive income. These integrity measures will principally apply to the property and infrastructure-related sectors, however other sectors will also be impacted.

Briefly, subject to transitional rules, the 15% MIT withholding tax rate will be increased to 30% where the MIT trust distributions to foreign investors are perceived to be sourced from cross-staple payments that effectively convert active business income to passive income (e.g. rental income).

Certain transitional or grandfathering provisions may be applicable for seven years (for ordinary business staples) and 15 years (for traditional infrastructure asset staples).

Further, a 15-year exemption will apply for new government-approved infrastructure assets of national significance (expected to include, for example, roads, rail, ports and airports).

The government is expected to consult more widely on these proposed measures in the coming months.

Further, multi-entity or multi-level gearing will be tightened under the thin capitalisation rules for associated entities.

Agricultural land will be excluded from MIT and related concessions from July 1 2019.

The existing tax exemptions for foreign pension funds and sovereign wealth funds will be substantially tightened, and with respect to interest, for example, the withholding tax exemption will be limited to portfolio (less than 10%) and passive-type investments.

While the treasurer's announcement provides appropriate guidance, there are key definitional/conceptual issues requiring clarification (for example the transitional rules and details of what is regarded as a nationally significant infrastructure) and further consultation will follow in the coming weeks and months.

Other developments

The Asia region funds passport (corporate law amendments) legislation was introduced into Parliament on March 28 2018; and Australia has updated its treaty arrangements with France to provide mutual assistance in the recovery of tax from April 1 2018.


Jock McCormack

Jock McCormack (

DLA Piper Australia

Tel: +61 2 9286 8253

Fax: +61 2 9286 8007


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