Australia: Stapled structures

October 26 2017

The Australian government is reviewing the tax policy applicable to stapled structures, which are commonly used in the real estate, infrastructure and related sectors following the issue of Australian Taxation Office (ATO) Taxpayer Alert 2017/1 and a Treasury consultation paper earlier in 2017.

Many traditional, critical infrastructure assets, including roads, rail, ports, certain utilities, electricity generation, transmission and distribution assets and related infrastructure are commonly held in stapled structures (i.e. stapled companies and trusts, the latter being a 'flow through' vehicle).

The ATO, treasury and government have been concerned about the significantly expanded use of stapled structures in recent years, including both listed and unlisted trusts, including managed investment trusts. Foreign investors currently secure concessional withholding tax (15%) on distributions of net income (essentially rental income and capital gains) by qualifying managed investment trusts.

The government review has attracted much interest from a broad range of foreign investors in Australian real estate, infrastructure and related assets, including foreign-based multinational corporations, foreign pension funds, sovereign wealth funds and other institutional investors. The review is expected to be progressed and recommendations made for potential changes in the tax policy applicable to stapled structures later in 2017/early 2018.

It is noteworthy that several of the recently privatised infrastructure assets – electricity distribution and transmission and ports – in New South Wales have been structured by way of stapled structures.

Whistleblower initiative

Separately, Kelly O'Dwyer, minister for revenue and financial services, recently established an expert advisory panel to advise the government on proposed whistleblower initiatives and related legislative reform.

The government is committed to meaningful protection for individuals who report corporate fraud or serious misconduct, tax evasion or avoidance and has mandated the expert panel to develop a strong legal framework to enable regulators and law enforcement agencies to quickly and decisively act on whistleblower information and reports.

Affordable housing managed investment trusts

Finally, the government has recently issued exposure draft legislation to enable managed investment trusts (MITs) to invest in affordable housing (for low income groups) and thereby access, amongst other things, the concessional MIT withholding tax rate of 15% for eligible foreign residents.

This initiative is strongly targeted at attracting foreign investors into this market segment in Australia that is expected to significantly develop in the coming years. There are strict qualifying criteria and it is expected that the draft legislation will progress into law in the short term, as it is meant to be applicable from July 1 2017.