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  • Stapled groups – Choice to apply transitional provisions

    From 1 July 2019, the higher withholding tax rate of 30% applies to managed investment trust (MIT) fund payments made to foreign residents that are attributable to ‘non concessional MIT income’ which include ‘MIT cross staple arrangement income’.

    To find out whether the higher withholding tax rate applies to you, go to Stapled Structures.

    Transitional provisions

    Transitional relief is available in respect of fund payments that are attributable to MIT cross staple arrangement income arising from cross staple arrangements covered by section 12-440 of Schedule 1 of the Taxation Administration Act 1953 (TAA) where the relevant entities have made a valid choice to apply the transitional provisions.

    To make a valid choice for transitional relief, you must use the following form:

    Where transitional relief applies to a cross staple arrangement, the existing withholding tax rate of 15% will continue to apply to relevant fund payments during the transition period, subject to integrity rules.

    In addition, a specific deduction is available under section 25-120 of the Income Tax Assessment Act 1997 (ITAA 1997) to the operating entity for rent paid to the asset entity under the cross staple arrangement.

    The choice is an important condition precedent to the application of the transitional provisions and cannot be backdated. However, it is not the only requirement for transitional relief to apply. The choice and notification of the choice, without satisfaction of the requirements in section 12-440 of Schedule 1 of the TAA, will not in and of itself be sufficient to enter a cross staple arrangement in relation to a facility into the transitional provisions.

    When is the transition period?

    Transitional relief is available for:

    • seven years in respect of a cross staple arrangement that relates to a facility that is not an economic infrastructure facility
    • 15 years in respect of a cross staple arrangement that relates to an economic infrastructure facility.

    Certain cross staple arrangements may have a shorter transition period, depending on when assets forming part of the facility are first put to use.

    What does transitional relief apply to?

    Transitional relief may be available in respect of a facility where either:

    • an entity owned or leased the facility prior to 27 March 2018
    • an entity has entered into a contract before 27 March 2018 for the acquisition, creation or lease of the facility
    • an Australian Government agency approved the acquisition, creation or lease of the facility before 27 March 2018.

    Where the above is satisfied, transitional relief is available in respect of a cross staple arrangement:

    • that was entered into in relation to the facility before 27 March 2018
    • where it was reasonable on 27 March 2018 to conclude that it would be entered into in relation to the facility.

    Who must make the choice?

    The choice must be made by each entity that is party to the cross staple arrangement that relates to the facility that gives rise to rent. This will be the operating entity that pays the rent and the asset entity that receives the rent.

    In order for transitional relief to apply, both the operating entity and the asset entity are required to make the choice on a separate form and both entities are required to notify the Commissioner of Taxation.

    If the operating entity is a subsidiary member of a consolidated group or MEC group, the choice must be made by the head company or provisional head company of the group at the time the choice is made.

    Once the entity makes the choice, it cannot be revoked.

    When is the form due?

    The choice must be made no later than 30 June 2019.

    You must give this form to the Commissioner within 60 days of making the choice.

    For example, if you make the choice on 30 June 2019, you must give the form to the Commissioner no later than 29 August 2019.

    What information is required in Section B: Cross staple arrangements?

    Identifying the cross staple arrangement and facility

    Given the importance of the choice requirement and the time by which the choice must be made, it is recommended that a prudent approach to the identification of the cross staple arrangements and facilities is adopted. This includes ensuring that you make, and notify the Commissioner of each choice in respect of each cross staple arrangement and all identifiable facilities. For example:

    • Where a cross staple arrangement exists in relation to a facility and an additional investment is being implemented, which may or may not be an expansion to the existing facility, a prudent approach would be to detail separately, each of the existing facilities and the facilities comprising the additional investment.
    • If unsure, you may adopt a single detailed description of all the facilities, so long as they are subject to a single cross staple arrangement.

    The approach adopted to describe the relevant facility will not guarantee a particular treatment or characterisation of the facility.

    The description/s of the facility notified in the form should be consistent as between the asset entity and the operating entity.

    List each transitional cross staple arrangement under which rent from land investment is paid to you or by you.

    You may list up to three different cross staple arrangements on the form. If an entity is party to more than three cross staple arrangements, these should be included on a separate piece of paper containing the required information and submitted with the form.

    Description of facility

    The response should describe the facility that will be subject to the transitional relief.

    This could include, for example: ‘electricity network’, ‘cattle farm’, or ‘hotel’.

    Economic infrastructure facility

    Place an X in the box where the cross staple arrangement relates to a facility which is an economic infrastructure facility.

    An economic infrastructure facility is a facility that is one of the following:

    • transport
    • energy
    • communications
    • water infrastructure.

    How to submit your form

    Lodge your form as an attachment via secure mail on the ATO portal after 28 April 2019.

    You need to be registered to access our online services – to learn more about our online services, visit www.ato.gov.au/onlineservices.

    More information

    For more information about the form, you can:

    For more information about stapled groups and the Treasury Laws Amendment (Making Sure Foreign Investors Pay Their Fair Share of Tax in Australia and Other Measures) Act 2019 go to Stapled Structures.

      Last modified: 19 Jun 2019QC 58563