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  • Stapled structures

    On 27 March 2018 the Government announced a package of measures for stapled structures, and other associated issues. The release of the package follows consultation that has been undertaken by Treasury over the past year in relation to “income re-characterisation” staples.

    A stapled structure is an arrangement where two or more entities that are commonly owned (at least one of which is a trust) are bound together, such that they cannot be bought or sold separately.

    The package of measures address the sustainability and tax integrity risks posed by stapled structures and limit the concessions currently available to foreign investors for passive income. The key elements of the package are:

    • applying a final withholding tax set at the corporate tax rate to distributions derived from trading income that has been converted to passive income using a Managed Investment Trust (with a 15 year exemption for new, Government-approved nationally significant infrastructure assets);
    • amending the thin capitalisation rules to prevent foreign investors from using multiple layers of flow-through entities (i.e. trusts and partnerships) to convert their trading income into favourably taxed interest income;
    • limiting the foreign pension fund withholding tax exemption for interest and dividends to portfolio investments only;
    • creating a legislative framework for the existing tax exemption for foreign governments (including sovereign wealth funds), and limiting the exemption to portfolio investments; and
    • excluding agricultural land from being an ‘eligible investment business’ for a Managed Investment Trust.

    Administrative treatment

    These changes (except the thin capitalisation changes), will take effect from 1 July 2019. The thin capitalisation changes will take effect from 1 July 2018.

    To balance concerns over the impact on existing arrangements, transitional arrangements of seven years (ordinary business staples) and 15 years (for infrastructure assets) have been included for the majority of the package.

    Sovereign investors that have a ruling from the ATO on sovereign immunity for a particular investment extending beyond the seven year period will be able to access the transition period on that investment until the expiry of the ruling.

    Following the implementation of this policy package, the general anti-avoidance rule will not apply with respect to the choice of a stapled structure to obtain a deduction in respect of cross staple rent during the transition period.

    Legislation and supporting material

    Legislation is being developed for these measures.

    More information

      Last modified: 17 Apr 2018QC 55128