Stapled Structures
The Stapled Structures Act gives effect to the measures announced on 27 March 2018, which followed the release of Taxpayer Alert 2017/1 and an extensive consultation process relating to the potential tax benefits associated with stapled structures.
What the Stapled Structures Act covers
The Stapled Structures Act includes the following five schedules:
Schedule 1
Schedule 1 ensures that trading income that is converted to passive income via a stapled structure or distributed by a trading trust, and income from agricultural land and residential housing (other than affordable housing), will be subject to a 30% withholding tax rate.
Fund payments, to the extent that they are attributable to non-concessional MIT income (NCMI), will be subject to a 30% withholding tax rate.
NCMI includes the following:
- Managed Investment Trust (MIT) cross staple arrangement income
- MIT trading trust income
- MIT agricultural income
- MIT residential housing income.
A 15-year exception is available from this element of the package for new government-approved, nationally-significant infrastructure staples.
Schedule 1 applies from 1 July 2019.
Existing staples may be eligible for transitional relief for seven years for ordinary business staples and 15 years for economic infrastructure assets.
MITs investing in agricultural land will have access to transitional relief until 30 June 2026, and MITs investing in residential housing will have access to transitional relief until 30 September 2027.
The form to access the transitional relief: Stapled Groups - Choice to apply transitional provisions will be available on our website and you can lodge this using our portal from 28 April 2019.
Schedule 2
Schedule 2 amends the thin capitalisation rules to prevent foreign investors from using double gearing structures to convert their active business income to interest income, which is taxed at 10% or less.
These structures use layers of trusts or partnerships resulting in overall gearing levels in excess of the thin capitalisation limits.
Schedule 2 applies to income years commencing on or after 1 July 2018.
Schedules 3 and 4
Schedules 3 and 4 limit the existing tax exemptions for foreign pension funds and sovereign wealth funds.
Schedules 3 and 4 limit these exemptions to passive income and portfolio investments only – typically interests of less than 10%. These changes will take effect from 1 July 2019.
A seven-year transition period will be available for existing investments held by foreign pension funds and foreign government investors that held a valid ruling on 27 March 2018 in respect of their investments.
Schedule 5
Schedule 5 contains contingent amendments that apply if the Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 2) Act 2019 has not commenced at, or prior to, the commencement of Schedules 1 to 4 to this Act. This ensures that the provisions in this Schedule apply to identify the meaning of providing affordable housing (refer to Schedule 1).
Schedule 5 includes the same meaning of providing affordable housing as Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 2) Bill 2018.
See also:
On 5 April 2019, Treasury Laws Amendment (Making Sure Foreign Investors Pay Their Fair Share of Tax in Australia and Other Measures) Act 2019 (Stapled Structures Act) received Royal Assent.